Climate Change Technology and Policy Options

S. HRG.
107670
CLIMATE CHANGE TECHNOLOGY AND

POLICY OPTIONS
HEARING
BEFORE THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
JULY 10, 2001
Printed for the use of the Committee on Commerce, Science, and Transportation
U.S. GOVERNMENT PRINTING OFFICE

81727 PDF WASHINGTON : 2004
For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 5121800; DC area (202) 5121800
Fax: (202) 5122250 Mail: Stop SSOP, Washington, DC 204020001
VerDate 0ct 09 2002 07:58 Jul 12, 2004 Jkt 081727 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\WPSHR\GPO\DOCS\81727.TXT JACK PsN: JACKF
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
ERNEST F. HOLLINGS, South Carolina, Chairman

DANIEL K. INOUYE, Hawaii JOHN MCCAIN, Arizona
JOHN D. ROCKEFELLER IV, West Virginia TED STEVENS, Alaska
JOHN F. KERRY, Massachusetts CONRAD BURNS, Montana
JOHN B. BREAUX, Louisiana TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota KAY BAILEY HUTCHISON, Texas
RON WYDEN, Oregon OLYMPIA J. SNOWE, Maine
MAX CLELAND, Georgia SAM BROWNBACK, Kansas
BARBARA BOXER, California GORDON SMITH, Oregon
JOHN EDWARDS, North Carolina PETER G. FITZGERALD, Illinois
JEAN CARNAHAN, Missouri JOHN ENSIGN, Nevada
BILL NELSON, Florida GEORGE ALLEN, Virginia
KEVIN D. KAYES, Democratic Staff Director
MOSES BOYD, Democratic Chief Counsel
MARK BUSE, Republican Staff Director
ANN CHOINIERE, Republican General Counsel
(II)
CONTENTS
Page
Hearing held on July 10, 2001 ............................................................................... 1
Statement of Senator Brownback ........................................................................... 156
Prepared statement .......................................................................................... 160
Statement of Senator Kerry .................................................................................... 1
Statement of Senator McCain ................................................................................. 5
Statement of Senator Snowe ................................................................................... 29
WITNESSES
Cassidy, Frank, President and Chief Operating Officer, PSEG Power LLC ...... 139
Claussen, Eileen, President, Pew Center on Global Climate Change ................. 127
Duffy, Dennis J., Vice President of Regulatory Affairs, Energy Management,
Inc. ......................................................................................................................... 48
Evans, Dr. David L., Assistant Administrator, Oceanic and Atmospheric Re-
search, National Oceanic & Atmospheric Administration ................................ 6
German, John, Manager, Environment and Energy Analyses, Product Regu-
latory Office, American Honda Motor Company, Inc. ....................................... 80
Hawkins, David G., Director, Natural Resources Defense Council, Climate
Center .................................................................................................................... 131
Kammen, Dr. Daniel M., Professor of Energy and Society, Energy and Re-
sources Group, and Professor of Nuclear Engineering, University of Cali-
fornia ..................................................................................................................... 56
Koetz, Maureen, Director of Environmental Policy and Programs, Nuclear
Energy Institute ................................................................................................... 41
Miller, William T., President, International Fuel Cells ....................................... 32
Sandor, Dr. Richard L., Chairman and CEO, Environmental Financial Prod-
ucts LLC ............................................................................................................... 104
APPENDIX
Coleman, William C., President and Chief Executive Officer, Hancock Natural
Resource Group, prepared statement ................................................................. 196
The Pacific Forest Trust, prepared statement ...................................................... 197
Response to written questions submitted by Hon. Ernest F. Hollings to:
Eileen Claussen ................................................................................................ 164
Dr. David L. Evans ........................................................................................... 169
David G. Hawkins ............................................................................................ 177
Daniel M. Kammen .......................................................................................... 179
William T. Miller .............................................................................................. 189
Response to question asked at hearing by Hon. John McCain to:
Dr. David L. Evans ........................................................................................... 172
(III)
IV
Page
Response to written questions submitted by Hon. John McCain to:
Frank Cassidy ................................................................................................... 163
Eileen Claussen ................................................................................................ 166
Dennis J. Duffy ................................................................................................. 167
Dr. David L. Evans ........................................................................................... 172
David G. Hawkins ............................................................................................ 178
Daniel M. Kammen .......................................................................................... 183
Maureen Koetz .................................................................................................. 184
William T. Miller .............................................................................................. 190
Dr. Richard L. Sandor ...................................................................................... 195
Response to written questions submitted by Hon. Olympia J. Snowe to:
Dr. David L. Evans ........................................................................................... 174
William T. Miller .............................................................................................. 191
CLIMATE CHANGE TECHNOLOGY AND
POLICY OPTIONS
TUESDAY, JULY 10, 2001
U.S. SENATE,
COMMITTEE ON COMMERCE, SCIENCE, TRANSPORTATION,
AND
Washington, DC.
The Committee met at 9:30 a.m., in room SR253, Russell Sen-
ate Office Building, Hon. John F. Kerry, presiding.
OPENING STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator KERRY. The hearing will come to order, which it appears
to already have done brilliantly.
Good morning everybody, and welcome to this full Committee
hearing of the Commerce, Science, and Transportation Committee.
I would like to thank Chairman Hollings and Ranking Member
McCain for calling the hearing and heading us off in the direction
that we will move today, and I would like to put that in a context
if I can just for a moment.
For many years now, we on this Committee have held hearings
on the issue of global warming starting around 1990, 1991. Then
Senator Gore joined me to begin the early inquiries into global cli-
mate change. A number of us traveled to Rio de Janeiro for the
Earth Summit in 1992 where the original framework convention on
climate change was passed, which was obviously a voluntary
framework, but which established that this is a serious problem
and that we need to deal with it.
Here we are now in the next century, the next millennium, 2001,
and regrettably some have been still content to just debate the
science. This hearing is specifically geared towards building on the
hearings that then Chairman McCain held earlier in the year to
move us beyond that debate. Todays hearing focuses on the tech-
nologies and policies that can help us to mitigate the threat of cli-
mate change.
And while obviously we will still focus on some of the science
and clearly the underlying science remains an important concern of
the Committee because we have to use that science in making judg-
ments about what technologies make the most sense or what the
results may bethis does mark a very significant shift in the focus
of this Committee from science to solutions.
Over the past year as I mentioned, Senator McCain held a series
of hearings that included some of the top scientists of the world,
and not surprisingly, the record of those hearings paralleled the
findings of the National Academy of Sciences report released in
(1)
2
June on the science of climate change. That report, which follows

on the heels of similar findings of the Intergovernmental Panel on
Climate Changes report and dozens of other individual studies,
concluded that greenhouse gases are accumulating in the Earths
atmosphere as a result of human activities, that air and ocean tem-
peratures are rising and are expected to rise further, and that
human activities, mainly burning fossil fuels and deforestation, are
a contributing factor.
So this Committee will not ignore the science of climate change,
because that obviously drives our agenda. But it is important that
we try to move now to constructively considering the options that
other countries have already moved to and that seem to become
more compelling.
Let me state for the record that the Department of State and the
White House were invited to testify before the Committee today,
but declined to do so. I wrote both Secretary Powell and Chief of
Staff Card late last week, when we heard that they had decided
against testifying, in hopes that they would reconsider. Obviously
they did not, and I am very pleased to have Dr. Evans, who is a
very respected career scientist from NOAA here to represent the
Department of Commerce, and I appreciate your doing so, and I ap-
preciate your testimony, which I read just before coming in here.
But I do regret that other officials have not come to share with
us their views at this point about what possibilities may exist. This
is not a political exercise; this is a policy exercise, one that we are
engaged in inquisitively. We are trying to find solutions, as are
other people, and it is helpful for the country to have a dialog
about this so we can all understand the options better.
I thought this was our chance, two weeks before the next meet-
ing of the parties of the conference, to try to help come to some de-
cision about where we proceed post-Kyoto, that it might have been
a good opportunity to be able to have some of that discussion. We
have been told that the Administration has committed significant
resources at the highest levels of Government to assess this issue.
National Security Advisor Condoleezza Rice has described the ef-
fort as so intense as to be unprecedented.
The Commerce Committee has demonstrated, through Senator
McCains earlier efforts this year and prior to that, a serious com-
mitment to understanding the science of climate change and also
to recognizing our jurisdiction over important laws and programs
relevant to this issue, ranging from the basic scientific research to
auto efficiency standards, to technological research, development
and deployment. So I regret that we cant have as full a discussion,
but I hope we will be able to proceed to follow up on that sometime
in the near future.
Let me emphasize what this hearing is about. I dont approach
this with a preconceived determination as to what the order of pri-
orities is for how we proceed. I am not sure any member of this
Committee could or would dare to do so today. What we do want
to try to do is lay out on the table some of the technologies and
policies that make climate change not an intractable problem, but
rather an opportunity and a moment where we could conceivably
help our economy and not hurt it, as well as implement good envi-
ronmental policy at the same time.
3
Clearly, to address climate change the United States and the

world have to move from polluting technologies to sustainable tech-
nologies. I dont propose that we immediately stop burning coal, oil
and natural gas in order to respond to this problem, nor do I know
any other person of common sense who suggests that. It is not an
option. I recognize we have to build an additional pipeline and we
need to continue to drill. We are stuck, to a certain degree.
But there are many, many things that all of us understand are
available as options that could move us much more rapidly, much
more affirmatively and proactively, toward the adoption of those
sustainable policies in ways that are the least intrusive, most effi-
cient, and least costapproaches that could wind up being syner-
gistic with our economic interests, rather than counterproductive.
So those are the options that we are interested in looking at. It
is interesting to note, in that vein, that our economy today is twice
as energy-efficient as it was in 1973, which means that producing
a single unit of GDP today requires half the energy that it required
in 1973. We have doubled, during that period of time, the efficiency
of Americas automobiles, thanks to the CAFE program. We save
3 million barrels of oil daily and more than 20 billion annually by
building safer, more highly reliable quality cars.
The sale of efficient compact fluorescent lamps increased fivefold
from 1990 to 1999. American steel mills are 25 percent more effi-
cient today, and paper and pulp production is nearly 30 percent
more efficient than 30 years ago. Many people believe that there
are incentives such as tax incentives, grants, various kinds of tech-
nological transfer programs, and other mechanisms we could use to
excite and rapidly accelerate our capacity to augment those kinds
of gains.
In fact, energy efficiency is misunderstood by many people. Con-
servation means turning off the lights or using less fuel, but energy
efficiency means achieving the same output, the same consequence
with less, and we have proven over the last 20 years that we have
the ability as a country to do that.
We will hear today from people who will talk about many dif-
ferent technologies that are right on the borderline of being able to
become economically viable, which could have a profound impact on
Americas contribution to the entire issue of climate change, and
that is the purpose of todays hearing. There are many of us who
believe we are moving far too slowly, that we have not really adopt-
ed as a national enterprise the effort to prove our bona fides in this
area.
Many of the technologies that could help us do that are already
in the marketplace, and the challenge is to increase their use, in-
cluding cogeneration, wind power, solar, methane, biomass, hydro-
gen fuel cells, more efficient cars and appliances. Others are tech-
nologically proven, but have yet to gain a commercial foothold. And
still others remain on the drawing board, and while they have tre-
mendous potential, that potential will only be achieved if we pur-
sue them with the same kind of intensity and investment that we
have pursued in space exploration, communications, and medicine.
I believe, and others share the belief, that the burden is on us
to create the push and pull of incentives and mandates that will
move these technologies to the marketplace faster.
4
[The prepared statement of Senator Kerry follows:]
PREPARED STATEMENT OF HON. JOHN F. KERRY,

U.S. SENATOR FROM MASSACHUSETTS
I want to thank Chairman Hollings and Ranking Member McCain for holding this
hearing. To begin, Id like to put this hearing into context. Todays hearing focuses
on the technologies and policies that can help us mitigate the threat of climate
change. While we will focus some on the science and while the underlying science
remains an important concern of this Committee, today marks a significant shift in
our focus from the science to the solutions of climate change.
Over the past year, Senator McCainas Chairman of this Committeeheld a se-
ries of hearings that included some of the top scientists in the world. Not surpris-
ingly, the record of those hearings parallels the findings of the National Academys
of Sciences report released in June on the science of climate change. That report
which follows on the heels of similar findings of the Intergovernmental Panel on Cli-
mate Changes report and dozens of other individual studiesconcluded that green-
house gases are accumulating in the Earths atmosphere as a result of human ac-
tivities; that air and ocean temperatures are rising and are expected to rise further;
and that human activities, mainly burning fossil fuels and deforestation, are a con-
tributing factor.
This Committee is by no means ignoring the science of climate changethe
science is what is driving this Committees agenda in regard to climate change
and that is why, after four hearings that together create a compelling argument for
action, we are now investigating the technologies and policies that can reduce green-
house gas emissions. It is an important step, and Im glad to see the Committee
take it.
Second, I want the record to show that the Department of State and the White
House were invited to testify before the Committee today but declined to do so. I
wrote both Secretary Powell and Chief of Staff Card late last week when I heard
that the Administration had decided against testifying in hopes that they would re-
consider. Obviously, they did not. While Im pleased to have Dr. Evans, a respected
career scientist from NOAA here to represent the Department of Commerce, I regret
that senior officials from the State Department, Commerce Department, and the
White House are not here today.
I want to be clear that while I have differences with Administrations approach
to this issue, I am not here to assail the Bush Administration. Today was a chance
for the Administration to set forth its approach to climate change, which is not an
unreasonable request. The Administration has told us that it has committed signifi-
cant resources at the highest levels of government to assessing climate changeNa-
tional Security Advisor Condoleezza Rice has described this effort as so intense as
to be unprecedented. The Commerce Committee has demonstrated a commitment to
understanding the science of climate change over past several years. The Committee
has jurisdiction over several laws and programs important to the issueranging
from basic scientific research to auto efficiency standards to technological research,
development and deployment. It seems to me that the Administration might have
welcomed the opportunity to come before the Committee and discuss the policies
that it believes this nation should enact. It seems to me that today is lost oppor-
tunity for the Administration.
Lastly, todays hearing will bring forth some of the technologies and policies that,
I believe, make climate change not an intractable problem, but a challenge to be
understood and addressed, and, as importantly, an economic opportunity. To ad-
dress climate change, America and the world must move from polluting technologies
to sustainable technologies. I dont propose that we immediately stop burning coal,
oil and natural gas to address climate change or other environmental issues. In-
stead, I advocate a gradual transition from heavily-polluting energy to clean energy
at a pace that is technologically viable and economically beneficial. I advocate that
we do this in the most efficient, least cost manner and that we address the real
world economic realities associated with any technological shift. Today, we are mov-
ing far too slowly with almost no recognition of the environmental implications of
our pollution and with no purpose to incite the necessary technological innovation.
Some of these technologies are already in the marketplace and the challenge is to
increase their usethey include cogeneration, wind power, solar, methane, biomass,
hydrogen fuel cells and more efficient cars and appliances. Others are techno-
logically proven but have yet to gain a commercial foothold. And still others remain
on the drawing board, and while they have tremendous potential, that potential can
only be achieved if we pursue them with the same kind of intensity and investment
5
we have placed in space exploration, communications and medicine. I believe that
the burden is on us to create the push and pull of incentives and mandates that
will move these technologies into the marketplace for the benefit of our economy and
our environment.
Thank you.
Senator KERRY. Senator McCain.
STATEMENT OF HON. JOHN McCAIN,

U.S. SENATOR FROM ARIZONA
Senator MCCAIN. Thank you, Senator Kerry, for continuing this
series of hearings on this very, very important topic. I think that
each study, each new expert on this issue reveals the urgency and
compelling aspect of this problem of climate change in America.
Based upon previous hearings, you, I and others have been working
on legislation to address many of the options, and hopefully in the
near future, we can join together with a joint bipartisan piece of
legislation that I think would at least make some progress, towards
addressing this issue.
I look forward to hearing about the status of several technologies
which can lead to significant emissions reductions. I recognize the
solutions to the problems will require increased investments in
many different areas, and todays second panel certainly represents
a diversity of technologies. Some of these technologies, such as
wind and nuclear power, have been around for many years. These
technologies possess tremendous abilities to reduce the amount of
carbon dioxide in the atmosphere while playing a major role in the
future energy production and utilization needs of the country.
Many of these technologies will allow the Nation to become more
energy efficient and will conserve precious natural resources. I
think the information the second panel will provide us with is criti-
cally important as we deliberate on how to increase energy supplies
to meet our future energy needs, while taking important measures
to protect the environment.
Mr. Chairman, in the recent National Academy report, Climate
Change Science and Analysis of Some Key Questions, it was stated
thatand I quoteNational policy decisions made now and in the
longer term future will influence the extent of any damage suffered
by vulnerable human populations and ecosystems later in this cen-
tury.
The report further statesand I quoteThere is considerable
uncertainty in current understanding of how the climate system
varies naturally and reacts to emissions of greenhouse gases and
aerosols.
These statements by the Academy put the upcoming policy deci-
sions into the proper perspective along with the need for additional
research. As we in the Senate continue to debate the policy issues,
it is pleasing to see that industry has started to take initiatives of
their own to address these problems. I look forward to hearing
about their voluntary activities and their impact on the economies.
I feel it is important we fully explore all policy options, including
mandatory emission reductions, before proceeding with any final
and definitive position. The issue of climate change is an important
one, and the Committee should be very informed about the latest
6
developments. It is also an issue that we need to take some action

on.
And I thank you, Senator Kerry, not only for this hearing, but
your continued and many years of involvement in this issue. I
thank the Chairman.
Senator KERRY. Thank you very much, Senator McCain.
[The prepared statement of Senator McCain follows:]
PREPARED STATEMENT OF HON. JOHN MCCAIN,

U.S. SENATOR FROM ARIZONA
First of all, let me thank Senator Kerry for continuing this series of hearings on
this very important topic. I think that todays hearing is an appropriate one consid-
ering the fact that several Members are currently considering several options for
legislation. Based upon previous hearings, I have been working on legislation to ad-
dress many of these options and plan to introduce a bill in the near future.
I look forward to hearing about the status of several technologies which can lead
to significant emission reductions. I recognize that the solution to this problem will
require increased investments in many different areas. Todays second panel cer-
tainly represents a diversity of technologies. Some of these technologies, such as
wind and nuclear power, have been around for many years. These technologies pos-
sess tremendous abilities to reduce the amount of carbon dioxide in the atmosphere
while playing a major role in the future energy production and utilization needs of
the country. Many of these technologies will allow the Nation to become more en-
ergy efficient and will conserve precious natural resources. This is critically impor-
tant as we deliberate on how to increase energy supplies to meet our future energy
needs while taking important measures to protect the environment.
In the recent National Academy Report, Climate Change Science: An Analysis of
Some Key Questions, it was stated that national policy decisions made now and
in the longer-term future will influence the extent of any damage suffered by vul-
nerable human populations and ecosystems later in this century. The report fur-
ther states that there is considerable uncertainty in current understanding of how
the climate system varies naturally and reacts to emissions of greenhouse gases and
aerosols. These statements by the Academy put the upcoming policy decisions into
the proper perspective along with the need for additional research.
As we in the Senate continue to debate the policy issues, it is pleasing to see that
industry has started to take initiatives of their own to address these problems. I
look forward to hearing about their voluntary activities and their impact on the
economy.
I feel that it is important we fully explore all policy options, including mandatory
emission reductions, before proceeding with any final and definitive position. This
issue of climate change is a very important one and the Committee should be very
informed about the latest developments surrounding it. It is also an issue that we
need to take action upon.
Again, I thank you Senator Kerry for holding this hearing and welcome all of our
witnesses here today.
Senator KERRY. Dr. Evans, thank you very much for joining us
today. We look forward to your testimony. If I can state, as is our
norm, your full testimony will be placed in the record as if read in
full. If you could summarize, that will give us more time to explore
possibilities with you. Thank you very much.
STATEMENT OF DR. DAVID L. EVANS, ASSISTANT

ADMINISTRATOR, OCEANIC AND ATMOSPHERIC RESEARCH,
NATIONAL OCEANIC & ATMOSPHERIC ADMINISTRATION
Dr. EVANS. Thank you very much, Mr. Chairman. As you know,
I am David Evans. I am Assistant Administrator of the National
Oceanic and Atmospheric Administrations Office of Oceanic and
Atmospheric Research, and I am here today to discuss global cli-
mate change, how the Department of Commerce is working to im-
7
prove our understanding, and the Departments programs to ad-

vance technologies which may help mitigate climate change.
The information I will present to you is based primarily on the
2001 report of the Intergovernmental Panel on Climate Change
(IPCC) and the recent National Academy report that both you and
Senator McCain have referred to.
But before addressing those findings, there are two fundamental
points that really are quite worthy of note, and they have been
known for quite some time. The first one is that the natural green-
house effect is real. It is an essential component of the planets cli-
mate process. A small percentage, about 2 percent of the atmos-
phere, is and has long been composed of greenhouse gases, water
vapor, carbon dioxide, ozone, methane, and these effectively pre-
vent part of the heat radiated by the Earths surface from other-
wise escaping into space.
The global system responds to this trapped heat with a climate
that is warmer on average than it would be otherwise without the
presence of these gases and, indeed, supports life as we have come
to appreciate it.
In addition, some greenhouse gases are increasing in the atmos-
phere because of human activities, and are increasingly trapping
more heat. Direct atmospheric measurements made over the past
40 years have documented the steady growth in the atmospheric
abundance of carbon dioxide. Ice core measurements using air bub-
bles trapped within layers of accumulating snow show that atmos-
pheric carbon dioxide has increased by more than 30 percent over
the industrial era compared with the preceding 750 years. The pre-
dominant cause of this increase in carbon dioxide is the combustion
of fossil fuels and the burning of forests.
Particles or aerosols in the atmosphere resulting from human ac-
tivities can also affect climate. Some aerosol types, such as sulfate
aerosols, act in the opposite sense to greenhouse gases and cause
a cooling of the climate system, while others, like soot, act in the
same sense and warm the climate. In summary, emissions of green-
house gases and aerosols due to human activities continue to alter
the atmosphere in ways that are expected to affect the climate.
Moving on to the more recent findings, there is a growing set of
observations that yields a collective picture of a warming world
over the past century. The global average surface temperature has
increased over the 20th Century by between 0.4 and 0.8 degrees
centigrade. The average temperature increase in the Northern
Hemisphere over the 20th Century is likely to have been the larg-
est of any century during the past thousand years.
Other observed changes are consistent with this warming. There
has been widespread retreat of mountain glaciers in non-polar re-
gions. Snow cover and ice extent have decreased. The global aver-
age sea level has risen between 10 and 20 centimeters, and that
is consistent with a warmer ocean, occupying more space just due
to thermal expansion of sea water.
There is new and stronger evidence that most of the warming
over the last 50 years is attributable to human activities. Since the
IPCC assessment in 1995, there is now a longer and more closely
scrutinized temperature record. Climate models have improved sig-
nificantly since the last assessment, and recent analyses have com-
8
pared surface temperatures measured over the last 140 years to

those simulated by the models.
Both natural climate change agents, such as variations in solar
output and episodic explosive volcanic eruptions, and human
agents, greenhouse gases and fine particles, have been included in
the models. The best agreement between the observations and the
model simulations over the last 140 years is found when both the
human-related and the natural climate change agents are included.
Further model simulations indicate that warming over the past
century is very likely not to be due to natural variability alone.
Scenarios of future human activities indicate continued changes
in atmospheric composition through the 21st Century. The amount
of greenhouse gases and aerosols over the next 100 years cannot
be predicted with high confidence, since future emissions will de-
pend on many diverse factors, including world population, the
economies, technology development, human choices, and they are
not uniquely quantifiable.
Based on scenarios covering a range of those factors, the result-
ing projection for global temperature increase by the year 2100
ranges from 1.3 to 5.6 degrees C. or about 212 to 10 degrees Fahr-
enheit. Such a projected rate of warming would be much larger
than the observed 20th Century changes. The corresponding pro-
jected change in sea level would be between 10 and 100 centi-
meters, between about 312 and 35 inches.
Finally, greenhouse warming could be reversed only very slowly.
This is because of the slow rate of removal from the atmosphere
of greenhouse gases, a period of centuries, and because of the slow
response of the ocean to thermal changes. Global average tempera-
ture increases and rising sea level are projected to continue for
hundreds of years after stabilization of greenhouse gas concentra-
tions, owing to the long time scales.
The IPCC report stresses a critical role of the oceans in under-
standing the Earths climate system due to sea waters capacity to
store and transport large amounts of heat. Scientists have recently
published a study using newly available data to prepare analysis
of ocean warming over the last 50 years. The global volume mean
temperature increase in the upper 300 meters was about three-
tenths of a degree Centigrade, and just to sort of give you a scale
for that, the U.S. consumption of electricity for something like
17,000 years, so it is a very significant amount of energy.
Two recent computer modeling studies have found that model in-
creases in the ocean heat were comparable to that which was ob-
served only when the effects of greenhouse gases and other forcings
were included.
The White House requested that the National Academy of
Sciences prepare a study to assist in identifying the areas of cli-
mate change science where there are greatest certainties and un-
certainties and give views on whether there were any substantive
differences between the IPCC reports and the IPCC summaries.
The National Academy of Science reported on June 6 with a
study entitled, Climate Change Science: An Answer to Some Key
Questions, and that summary states that, Greenhouse gases are
accumulating in the Earths atmosphere as a result of human ac-
tivities, causing surface air temperatures and subsurface ocean
9
temperatures to rise. Temperatures are, in fact, rising. The

changes observed over the last several decades are likely mostly
due to human activities, but we cannot rule out that some signifi-
cant part of these changes are also a reflection of the natural varia-
bility.
And it goes on to say, Because there is considerable uncertainty
in the current understanding of how the climate system varies nat-
urally and reacts to the emissions of greenhouses gases and
aerosols, current estimates of the magnitude of future warming
should be regarded as tentative and subject to future adjustments,
either upward or downward.
To address this uncertainty, the President has directed a Cabi-
net-level review of U.S. climate change policy. Based on their find-
ings, the President in his June 11 remarks committed his Adminis-
tration to increased investments in climate science. He announced
the establishment of U.S. climate Change Research Initiative to
study areas of uncertainty and identify areas where investments
are crucial.
The President directed the Secretary of Commerce, working with
other agencies, to set priorities for additional investments in cli-
mate change research, review such investments, and provide co-
ordination amongst Federal agencies. He pledged to fully fund
high-priority areas for climate change science over the next 5 years
and provide resources to build climate-observing systems in devel-
oping countries, and to encourage other developed nations to match
our commitment. That review process has begun, and we expect
the results to be reflected in the Presidents fiscal 2003 budget sub-
mission to Congress.
In addition to better understanding of the science, we will need
to advance our technology to deal with climate change. Due to the
long lifetime of CO2 in the atmosphere, stabilizing concentrations
means that we must ultimately end up with much lower net emis-
sions.
The long-term objective, the stabilized greenhouse concentrations
in the atmosphere, can be addressed in two ways: first by reducing
the emissions of greenhouse gases; second by means of capturing
and sequestering gases, either at the source or after they have been
released into the atmosphere.
There are significant climate change technology programs at
many Federal agencies, including notably the Department of En-
ergy, Environmental Protection Agency, and the Department of Ag-
riculture. However, within the Department of Commerce, a NIST
advanced technology program has funded research into tech-
nologies aimed at reducing emissionsthat is the first one of those
strategiesand improving energy efficiency, and increasing the use
of low-carbon fuels.
Similarly, the Manufacturing Extension Partnership helps manu-
facturers reduce their dependencies on fossil fuels and the use of
ozone-depleting substances. Other agencies are working on capture
and sequestration issues, on that side of the problem.
While the development of these and other technologies is crucial,
we should recognize that the apparent change in climate that we
have seen over the last 100 years has taken, indeed, 100 years to
present themselves. Stabilizing the climate will take comparable
10
time periods. It is not unreasonable to expect that the technology

of the world in 100 years will be as different today as todays is
from 100 years ago. At NOAA, we will pursue better science to in-
form the decisions as we proceed along.
Thank you very much for the opportunity to come and talk about
the science, Mr. Chairman. I would be happy to answer any of your
questions.
[The prepared statement of Dr. Evans follows:]
PREPARED STATEMENT OF DR. DAVID L. EVANS, ASSISTANT ADMINISTRATOR, OCEANIC
AND ATMOSPHERIC RESEARCH, NATIONAL OCEANIC & ATMOSPHERIC ADMINISTRATION
Good morning, Mr. Chairman and members of the Committee. I am David Evans,
Assistant Administrator of the Office of Oceanic and Atmospheric Research. NOAA
Research is one of five line offices within the National Oceanic and Atmospheric Ad-
ministration (NOAA) of the Department of Commerce. I have been invited to discuss
the Administrations position on climate change, how the Department is working to
improve our understanding of climate, and the Departments programs that may ad-
vance technologies which may mitigate climate change.
NOAA is the agency within the Department of Commerce tasked with developing
much of the ongoing research on climate change and climate variability and has
made major contributions to the understanding of the Earths climate system. We
work in partnership with other federal agencies, scientific organizations, and univer-
sities to generate the most accurate and reliable science that we can present on this
issue. In recent years, we have worked to identify gaps in our knowledge and capa-
bilities and to determine the impacts that climate change may have on society and
the environment. While our role in climate change is non-regulatory, our scientific
information is relied upon by policy makers in government and industry, including
those in the United States and other countries.
The information I will present to you today is based on a number of findings and
mainly represents the state of the science, and the Administrations policies as set
forth in the initial report of the Climate Change Review. With respect to the science,
I will refer primarily to the set of findings of the 2001 report of the Intergovern-
mental Panel on Climate Change (IPCC) and the National Academy of Sciences
(NAS) June 6, 2001 report, Climate Change Science: Analysis of Some Key Ques-
tions.
For more than a decade, NOAA scientists have been involved in various national
and international scientific assessments. These include National Academy of Science
studies, World Meteorological Organization/United Nations Environment Pro-
gramme (WMO/UNEP) reports on the scientific understanding of the ozone layer
and IPCC climate change science assessments. In the recently concluded IPCC sci-
entific assessment, four of our scientists served as lead authors, and three of our
scientists served as coordinating lead authors on the Technical Summary of the
Working Group I Report of the IPCC: Change 2001: The Scientific Basis, and the
Chapter on Observed Climate Variability and Change; the Chapter on Atmospheric
Chemistry and Greenhouse Gases; the Chapter on Aerosols, Their Direct and Indirect
Effects; the Chapter on Radiative Forcing of Climate Change; and the Chapter on
the Projections of Future Climate Change. The Summary was formally approved in
detail and accepted along with the underlying assessment report at the IPCC Work-
ing Group I Plenary session in January 2001.
The IPCC assessment took almost three years to prepare and represents the work
of more than 100 scientific authors worldwide. It is based on the scientific literature,
and was carefully scrutinized by hundreds of scientific peers through an extensive
peer review process. The independent NAS report was requested by the administra-
tion, and was a consensus report compiled by a 11-member panel of leading U.S.
climate scientists, including a mix of scientists who have been skeptical about some
findings of the IPCC and other assessments on climate change. The NAS panel at-
tempted to better articulate levels of scientific confidence and caveats than the IPCC
Summary for Policy Makers.
Before addressing the findings of both reports, two fundamental points are worthy
of note. These have been long-known, are very well understood, and have been deep-
ly underscored in all previous reports and other such scientific summaries.
The natural greenhouse effect is real, and is an essential component of the plan-
ets climate process. A small percentage (roughly 2%) of the atmosphere is, and long
has been, composed of greenhouse gases (water vapor, carbon dioxide, ozone and
11
methane). These effectively prevent part of the heat radiated by the Earths surface
from otherwise escaping to space. The global system responds to this trapped heat
with a climate that is warmer, on the average, than it would be otherwise without
the presence of these gases.
In addition to the natural greenhouse effect above, there is a change underway
in the greenhouse radiation balance, namely:
Some greenhouse gases are increasing in the atmosphere because of human activi-
ties and increasingly trapping more heat. Direct atmospheric measurements made
over the past 40-plus years have documented the steady growth in the atmospheric
abundance of carbon dioxide. In addition to these direct real-time measurements, ice
cores have revealed the atmospheric carbon dioxide concentrations of the distant
past. Measurements using air bubbles trapped within layers of accumulating snow
show that atmospheric carbon dioxide has increased by more than 30% over the In-
dustrial Era (since 1750), compared to the relatively constant abundance that it had
over the preceding 750 years of the past millennium. The predominant cause of this
increase in carbon dioxide is the combustion of fossil fuels and the burning of for-
ests. Further, methane abundance has doubled over the Industrial Era. Other heat-
trapping gases are also increasing as a result of human activities. However, we are
unable to state with certainty the rate at which the globe will warm or what effect
that will have on society or the environment.
The increase in greenhouse gas concentrations in the atmosphere implies a posi-
tive radiative forcing, i.e., a tendency to warm the climate system. Particles (or
aerosols) in the atmosphere resulting from human activities can also affect climate.
Aerosols vary considerably by region. Some aerosol types act in a sense opposite to
the greenhouse gases and cause a negative forcing or cooling of the climate system
(e.g., sulfate aerosol), while others act in the same sense and warm the climate (e.g.,
soot). In contrast to the long-lived nature of carbon dioxide (centuries), aerosols are
short-lived and removed from the lower atmosphere relatively quickly (within a few
days). Therefore, aerosols exert a long-term forcing on climate only because their
emissions continue each year.
In summary, emissions of greenhouse gases and aerosols due to human activities
continue to alter the atmosphere in ways that are expected to affect the climate.
There are also natural factors which exert a forcing of climate, e.g., changes in the
Suns energy output and short-lived (about 1 to 2 years) aerosols in the stratosphere
following episodic and explosive volcanic eruptions. Both reports evaluated the state
of the knowledge and assessed the level of scientific understanding of each forcing.
The level of understanding and the forcing estimate in the case of the greenhouse
gases are greater than for other forcing agents.
What do these changes in the forcing agents mean for changes in the climate sys-
tem? What climate changes have been observed? How well are the causes of those
changes understood? Namely, what are changes due to natural factors, and what
are changes due to the greenhouse-gas increases? And, what does this under-
standing potentially imply about the climate of the future?
These questions bear directly on the scientific points that you have asked me to
address today. In doing so, findings emerging from both the recent IPCC and NAS
climate change science reports with respect to measurements, analyses of climate
change to date, and projections of climate change will be summarized.
There is a growing set of observations that yields a collective picture of a warming
world over the past century. The global-average surface temperature has increased
over the 20th century by 0.4 to 0.8 C [NAS, p.16]. The average temperature in-
crease in the Northern Hemisphere over the 20th century is likely to have been the
largest of any century during the past 1,000 years, based on proxy data (and their
uncertainties) from tree rings, corals, ice cores, and historical records. Other ob-
served changes are consistent with this warming. There has been a widespread re-
treat of mountain glaciers in non-polar regions. Snow cover and ice extent have de-
creased. The global-average sea level has risen between 10 to 20 centimeters, which
is consistent with a warmer ocean occupying more space because of the thermal ex-
pansion of sea water and loss of land ice. The NAS report also found that at least
part of the rapid warming of the Northern Hemisphere during the first part of the
20th century was of natural origin.
There is new and stronger evidence that most of the warming observed over the
last 50 years is attributable to human activities. The 1995 IPCC climate-science as-
sessment report concluded: The balance of evidence suggests a discernible human
influence on global climate. There is now a longer and more closely scrutinized ob-
served temperature record. Climate models have evolved and improved significantly
since the last assessment. Although many of the sources of uncertainty identified
12
in 1995 still remain to some degree, new evidence and improved understanding sup-
port the updated conclusion. Namely, recent analyses have compared the surface
temperatures measured over the last 140 years to those simulated by mathematical
models of the climate system, thereby evaluating the degree to which human influ-
ences can be detected. Both natural climate-change agents (solar variation and epi-
sodic, explosive volcanic eruptions) and human-related agents (greenhouse gases
and fine particles) were included. The natural climate-change agents alone do not
explain the warming in the second half of the 20th century.
Scenarios of future human activities indicate continued changes in atmospheric
composition throughout the 21st century. The atmospheric abundances of greenhouse
gases and aerosols over the next 100 years cannot be predicted with high confidence,
since the future emissions of these species will depend on many diverse factors, e.g.,
world population, economies, technologies, and human choices, which are not
uniquely specifiable. Rather, the IPCC assessment aimed at establishing a set of
scenarios of greenhouse gas and aerosol abundances, with each based on a picture
of what the world plausibly could be over the 21st century. Based on these scenarios
and the estimated uncertainties in climate models, the resulting projection for the
global average temperature increase by the year 2100 ranges from 1.3 to 5.6 degrees
Celsius. Such a projected rate of warming would be much larger than the observed
20th-century changes and would very likely be without precedent during at least the
last 10,000 years. The corresponding projected increase in global sea level by the
end of this century ranges from 9 to 88 centimeters. Uncertainties in the under-
standing of some climate processes make it more difficult to project meaningfully
the corresponding changes in regional climate. The NAS report agrees with this pro-
jection but notes that future climate change will depend on what technological de-
velopments may allow reductions of greenhouse gas emissions.
Finally, I would like to relate a basic scientific aspect that has been underscored
with very high confidence in all of the IPCC climate-science assessment reports
(1990, 1995, and 2001). It is repeated here because it is a key (perhaps the key)
aspect of a greenhouse-gas-induced climate change:
A greenhouse-gas warming could be reversed only very slowly. This quasi-
irreversibility arises because of the slow rate of removal (centuries) from the atmos-
phere of many of the greenhouse gases and because of the slow response of the
oceans to thermal changes (NAS, p. 10). For example, several centuries after carbon
dioxide emissions occur, about a quarter of the increase in the atmospheric con-
centrations caused by these emissions is projected to still be in the atmosphere. Ad-
ditionally, global average temperature increases and rising sea level are projected
to continue for hundreds of years after a stabilization of greenhouse gas concentra-
tions (including a stabilization at todays abundances), owing to the long timescales
(centuries) on which the deep ocean adjusts to climate change.
Both reports stress the critical role of the oceans in understanding the Earths cli-
mate system due to the seawaters capacity to store and transport large amounts
of heat. While the first study to conclude that the global radiative balance of the
Earth system requires heat transport from the tropics to the poles was published
almost a century ago, identifying the mechanisms by which heat is transported re-
mains a central problem of climate research. Because of its large specific heat capac-
ity and mass, the world ocean can store large amounts of heat and remove this heat
from direct contact with the atmosphere for long periods of time. Studies of ocean
subsurface temperature variability were limited due mostly to the lack of data.
About 25 years ago, programs were initiated to provide measurements of upper
ocean temperature, and for the past 10 years there has been an increase in the
amount of historical upper ocean thermal data available. Levitus et al. have used
these data to prepare yearly, gridded objective analyses for the period of 1960 to
1990. With the use of the World Atlas Database 1998 temperature anomaly fields
were prepared. These analyses lead to the quantification of the interannual-to-
decadal variability of the heat content (mean temperature) of the world ocean from
the surface through 3000-meter depth for the period 1948 to 1998. The mean tem-
perature of the ocean increased by 2x1023 joules, representing a volume mean
warming of 0.06 C. This corresponds to a warming rate of 0.3 watt per meter
squared (per unit area of Earths surface). Substantial changes in heat content oc-
curred in the 300- to 1000-meter layers of each ocean and in depths greater than
1000 meters in the North Atlantic. The global volume mean temperature increase
for the 0- to 300-meter was 0.31 C. Two studies by U.S. scientists (Levitus et al.
and Barnett et al.) attempted to address the causes of the world ocean warming
using computer model simulations.
These studies were published in the April 13, 2001 issue of the journal of Science.
Both studies found that the model simulated increase in ocean heat content were
13
comparable to the observed increase only when the effects of greenhouse gases and
other forcings were included. The findings further reported that it is unlikely that
the observed increases result from random fluctuations of the climate system. The
long-term increase requires a sustained warming, such as would be expected from
increasing concentrations of atmospheric greenhouse gases. However, this assess-
ment depends upon how well the models simulate the internal variability of the
ocean system on time scales of 40 to 50 years.
The NAS study titled Climate Change ScienceAn Analysis of Some Key Ques-
tions was released on June 6 and originated from a White House request to inform
the Administrations ongoing review of U.S. climate change policy. In particular, the
Administration asked for assistance in identifying the areas in the science of cli-
mate change where there are the greatest certainties and uncertainties, and views
on whether there are any substantive differences between the IPCC reports and
the IPCC summaries.
The NAS Committee generally agreed with the assessment of human-caused cli-
mate change presented in the IPCC Working Group I (WG I) scientific report, but
aimed at articulating more clearly the remaining uncertainties. The NAS report
summary states: Greenhouse gases are accumulating in earths atmosphere as a re-
sult of human activities, causing surface air temperatures and subsurface ocean
temperatures to rise. Temperatures, are in fact, rising. The changes observed over
the last several decades are likely mostly due to human activities, but we cannot
rule out that some significant part of these changes are also a reflection of natural
variability. Importantly, the report observes: Because there is considerable uncer-
tainty in current understanding of how the climate system varies naturally and re-
acts to emissions of greenhouse gases and aerosols, current estimates of the mag-
nitude of future warming should be regarded as tentative and subject to future ad-
justments (either upward or downward).
To address this uncertainty, the President has directed the Cabinet-level review
of U.S. climate change policy. Based on the Cabinets initial findings, the President
in his June 11 remarks committed his Administration to invest in climate science.
He announced the establishment of the U.S. Climate Change Research Initiative to
study areas of uncertainty and to identify areas where investments are critical. He
directed the Secretary of Commerce, working with other agencies, to set priorities
for additional investments in climate change research, review such investments, and
to provide coordination amongst federal agencies. We will fully fund high-priority
areas for climate change science over the next five years. Well also provide re-
sources to build climate observation systems in developing countries and encourage
other developed nations to match our American commitment.
I would like to underscore that we will use the descriptions of the uncertainties
identified in the NAS report as the basis for development of U.S. research in cli-
mate. Cited areas of uncertainty include:
Feedbacks in the climate system that determine the magnitude and rate of tem-
perature increases
Future usage of fossil fuels
How much carbon is sequestered on land and in the ocean
Details of regional climate change
Natural variability of climate, and the direct and indirect effects of aerosols
We have convened an interagency working groups to develop a science plan to re-
duce the areas of uncertainties.
There is a great deal of concern as to what are the CO2 emissions from various
countries, and what scientists are finding about what level of CO2 reductions are
needed to stabilize concentrations in the atmosphere. According to the most recent
data from the Carbon Dioxide Information Analysis Center at the Department of
Energys Oak Ridge National Laboratory, countries with the highest CO2 emissions
are: the United States, with 1.49 billion tons of carbon emissions a year; China, with
0.91 billion tons; Russia, with 0.39 billion tons; Japan, with 0.32 billion tons; India,
with 0.28 billion tons; Germany, with 0.23 billion tons; the United Kingdom, with
0.14 billion tons; and Canada, with 0.13 billion tons.
Ultimately, due to the long lifetime of CO2 in the atmosphere to stabilize con-
centrations we must make progress on net emissions. To achieve this goal, techno-
logical advances must be made. Technology will continue to play an important role
in reducing greenhouse gas emissions and controlling costs of climate change mitiga-
tion. The long-term objectiveto stabilize greenhouse concentrations in the atmos-
pherecan be addressed in two ways: first, by reducing emissions of greenhouse
14
gases; and second, by means of capturing and sequestering gases, either at the
source or after they have been released into the atmosphere.
There are significant climate change technology programs at many federal agen-
cies, including notably the Department of Energy, the Environmental Protection
Agency, and the Department of Agriculture. I will confine myself to discussion of
programs at the Department of Commerce. In the past, the Department of Com-
merce NIST Advanced Technology Program has funded research into technologies
aimed at improving energy efficiency, and increasing the use of low carbon fuels.
Similarly, the Manufacturing Extension Partnership helps manufacturers to reduce
their dependencies on fossil fuels and use of ozone depleting substances. The NIST
Measurements and Standards Laboratory Program also provides the measurement
science and data to support climate change studies as well as calibration services
relating to atmospheric measurements. These activities contribute to the science
base for understanding the behavior of industrial chemicals in the environment,
evaluation of environmentally benign chemical alternatives, and measurement tech-
niques for key environmental species in the atmosphere.
In closing, we have outlined a significant number of items that challenge our ex-
isting understanding, and we will be placing special emphasis on them in the fu-
ture. We look forward to continuing to work with you on these issues. Thank you
again for the invitation to appear today. I hope that this summary has been useful.
I would be happy to address any questions.
Sources of cited information:
Levitus, S., J.I. Antonov, J. Wang, T.L. Delworth, K.W. Dixon, and A.J. Broccoli. An-
thropogenic Warming of Earths Climate System. Science 292: 267270 (2001).
Levitus, S., J.I. Antonov, T.B. Boyer, and C. Stephens. Warming of the World
Ocean. Science 287: 22252229 (2000).
Rossby, C. The Atmosphere and the Sea in Motion. Rockefeller Institute. 1959.
Committee on the Science of Climate Change. Climate Change Science: An Analysis
of Some Key Questions. National Academy Press: Washington, D.C. 2001. 28 p.
Summary for Policy Makers, Climate Change 2001: The Scientific Basis. Summary
for Policymakers and Technical Summary of the Working Group I Report. Cam-
bridge University Press, 98 pp. Also available at http://www.ipcc.ch. The full re-
port will be available this summer.
Parallel IPCC reports:
Climate Change 2001: Impacts, Adaptation and VulnerabilityContribution of
Working Group II to the Intergovernmental Panel on Climate Change (IPCC)
Third Assessment Report.
Climate Change 2001: MitigationContribution of Working Group III to the Inter-
governmental Panel on Climate Change (IPCC) Third Assessment Report.
IPCC, 2000: IPCC Special Report on Emissions Scenarios. Cambridge University
Press.
Senator KERRY. Let me begin just by, if I can, putting on the

record a little bit of your background. How long have you been at
this?
Dr. EVANS. How long have I been at this?
Senator KERRY. Yes.
Dr. EVANS. Well, I have been at NOAA for a little over 8 years.
Prior to that, I managed the physical oceanography program, large-
scale ocean program, for the Office of Naval Research and dealt
with the ocean part of climate from the Navy point of view for
about 6 years, and prior to that, I was at the University of Rhode
Island as an oceanographer, looking at large-scale phenomena for
about 15 years. Pretty long time by now.
Senator KERRY. So you have had a lot of experience following the
entire evolution of this issue itself.
Dr. EVANS. That is right.
Senator KERRY. And you are deeply immersed in it.
Senator KERRY. Now, based on your experience as a scientist,
you have made a judgment here which I think is very important,
15
and I want to just explore for a moment. You said toward the end
of your testimony, Ultimately due to the long lifetime of CO2 in
the atmosphere, to stabilize concentrations, we must make progress
on net emissions. Correct?
Dr. EVANS. That is correct.
Senator KERRY. So it is your conclusion that based on all of the
science to date, and based on our knowledge of our contribution
from a human level, that we are forced to find a way to reduce the
net emissions.
Dr. EVANS. I think that is certainly going to be the case. The al-
ternative would be to continue to accumulate CO2 in the atmos-
phere at whatever rate and take the consequences of that.
Senator KERRY. And that is unacceptable in your judgment as a
scientist.
Dr. EVANS. Well, I didnt say that it was unacceptable. I said
that the consequence of not getting to a very low emission rate
would be continued accumulation of CO2, and that would probably
lead to continued changes of the sort that we have seen. The ac-
ceptability or not, I think, has to do with how we want to live on
the planet. It is not strictly a scientific question.
Senator KERRY. Fair enough. But applying your common sense to
what we have observed already in terms of consequences, would
you deem those consequences acceptable from a policy point of
view?
Dr. EVANS. Well, this is going to get us down a slippery slope,
I am afraid, Senator. NOAAs position and role in all of these ac-
tivities really has been to try to present the science as clearly as
we can to those folks who are in a position to make the policy de-
terminations. NOAA doesnt really offer any regulation or any man-
agement specifically on the policies.
Senator KERRY. Well, let me just ask you. Leaving NOAA aside,
talk to me as Dr. Evans, you know, family man, American citizen.
What do you think?
Dr. EVANS. I think that if we continue to accumulate CO2 in the
atmosphere, we will continue to see warming of the Earths cli-
mate, change in the Earths climate. I think that we understand
very little about what the consequences of that will be. We are
much more confident in looking at the record of what we have done
so far and seeing the changes that have occurred so far, which are
modest, detectable for sure but modest, and we are far less con-
fident about what the consequences of those changes will be in the
future.
You know, we can certainly expect warming to continue, but
whether there would be dramatic changes and what those impacts
would be, our science for understanding that is far less well devel-
oped.
Senator KERRY. Now, accepting, as I do, that some of the models
with respect to what happens where, when and how are still in the
developmental stages, we are still struggling with those to some de-
gree. But we are not struggling with the notion that there are ob-
servable impacts as a result of warming, ranging from ice pack
melting, glacier melting, more violent weather, other kinds of
things that people have observed. Is that correct?
16
Dr. EVANS. Well, ice pack melting, glacial melting, those changes
are certainly consistent with a warming climate. I am not sure that
the evidence is actually in, in changes in violent weather, to be per-
fectly honest. I think there is really quite a lot of controversy, and
there is far less certainty about the impacts on what you call
weather as opposed to the overall climate. But we certainly are see-
ing impacts. I believe that.
Senator KERRY. And do you accept, as some have set forth, that
the range of consequences is not simply the increased warming
itself, but other things that happen to crops, to forest migration, to
spread of disease, to drought, to water supply? There are more
complicated consequences that certainly wise people would make
some precautionary judgments about, would they not?
Dr. EVANS. I think that there are a range of consequences of the
sort that you outlined that are certainly possible in a warmer
world. They dont take place in a uniform sense. You know, it is
not that any of those phenomena would take place everywhere.
One of the things that we have learned is that as the climate
changes, as the world warms, if you will, we will see changes that
are more pronounced of one sort or another in different regions. It
might be that one part of the country or one continent becomes
warmer and another part becomes wetter or drier. Unfortunately,
that is the very point where our science begins to provide us with
less confidence in our projections.
When we run the climate models, we get increased differences in
discrepancies among those models as we look at finer resolution
geographically, so that an effort to scientifically assess what the
consequences will be, in the northwest or the southeast part of this
country, we are less certain there.
Senator KERRY. Well, I completely agree with that, and I think
that is part of what makes it difficult, butthe but isit is irre-
versible.
Dr. EVANS. It will take a very long time to change. We have
taken a long time to warm things up now, and I wouldnt say that
it is necessarily irreversible. You know, there are natural processes
that do remove CO2 from the atmosphere. It is just that the time
scales associated with the change are very long.
Senator KERRY. Can you name a natural process that will re-
verse the rise of sea level?
Dr. EVANS. If the climate were to cool, then you would see a re-
verse of that, in the same way that we have warmed it, so if CO2
were removed from the atmosphere by processes, vegetation proc-
esses or continued absorption in the ocean, for example, processes
that take a very long time, then you could see a decrease in the
concentration of carbon dioxide in the atmosphere, a gradual cool-
ing, and a slow reversal of those processes. The thing that is so
striking about it, though, is that these are phenomena that have
got time scales in centuries, in fact.
Senator KERRY. And that is what makes it more compelling, be-
cause at the moment there is no public policy in any country any-
where in the world that is stimulating or exciting that reversibility,
is there?
Dr. EVANS. Not that I am aware of.
17
Senator KERRY. So, in fact, that is what puts on the table this
question of what steps are available to us that might or might not
make sense at this point in time. Now, measuring those, do you at
this point in time offer this Committee and the policymakers of the
administration any set of steps or priorities that you think make
the most sense in order of priority that we should be thinking
about adopting?
Dr. EVANS. There have been a wide range of possibilities offered,
and just taking a look at what you probably will get to hear in the
next two panels of your hearing today, I think you will probably
see a lot of those explored. My personal expertise is really in how
the ocean works and how the ocean and the atmosphere work to-
gether, and so one of the things, I think, scientists need to be pre-
pared to do is to explore in their models and with their under-
standing about the way the world works what the potential con-
sequences are of the options that are offered, whether they are eco-
nomic options or technical options, technological options.
When some of those options are put forward, then we need to
build tools which are very poorly developed right now to explore
how those options would actually play out in the physical environ-
ment, so that people would have an ability to make a rational
choice among the various options that might be in front of them.
Senator KERRY. Are there any that you particularly, just speak-
ing again scientifically, are excited about, that would have the best
effect in terms of the net zero emissions or net additional emis-
sions?
Dr. EVANS. Do I have a favorite? I would be hard-pressed to have
a favorite, I think. If we can figure out some way to deal with some
sort of capture and sequestration programs, I think that those are
probably going to be helpful somewhere along the line. We have
large amounts of fossil fuel still available, and as you mentioned
in your opening comments, we can anticipate using them for some
time to come. And so if we can develop some technologies that help
us reduce the amount of CO2 that we put into the atmosphere as
we extract energy from those fuels, I think that would probably
have some great benefit.
Senator KERRY. One of the greatest natural sequestration efforts
comes from the ocean itself. Correct?
Senator KERRY. And there is a huge amount of CO2 that is con-
tained within the ocean, in effect stored in the ocean.
Senator KERRY. But we dont know what the saturation point is
with respect to ocean storage, do we?
Dr. EVANS. No, we dont.
Senator KERRY. So it is possible that at some point in time, we
could reach that saturation point, and all of a sudden, you have an
overload on the rest of the planet. It is possible; I am not saying
it will happen. But we dont know the answer, do we?
Dr. EVANS. We certainly dont know the answer. That is right.
Senator KERRY. So you could conceivably have reached the point
where the oceans in effect, have swallowed up as much CO2 as they
are capable of, and then it starts being released in the atmosphere
18
with a much more devastating, rolling impact with further con-

sequences for global warming itself. No?
Dr. EVANS. That is possible. Yes.
Senator KERRY. Given the possibility of that, what does that say
to us in your judgment from a policy point of view? I mean, if we
are sitting here saying, Well, gee whiz, we are kind of indolently
rolling along here without any knowledge of when we reach this
point. Is there a danger in that? Should we be taking more radical
steps to avoid whatever might be uncontrollable at the outside of
that curve?
Dr. EVANS. That is a very difficult question to answer from a sci-
entific perspective. How much weight you want to put on the possi-
bility of an extreme event of whatever sort and admittedly rare, or
an event that you have difficulty assigning the probability to and
how much action you would like to take to provide insurance
against that, I think.
Unfortunately, one of the areas of climate change science that
has been studied a lot recently and where there has been recent
new attention placed has been trying to look at the changes in ex-
treme events. What is the probability of making a dramatic change
in the oceans circulation that would significantly affect climate
over a short period of time? We know that historically things like
that have occurred. We have seen them in the climate record, but
we dont understand the physics enough to know what triggers
them.
So it would be very difficult for me to tell you, you know, in a
probabilistic way whether putting CO2 in the ocean or some other
kind of proposed solution might trigger those events. That is an
area of active research where I hope science can make a real con-
tribution in the near term.
Senator KERRY. I have just a couple more questions, and then I
will turn it over to Senator McCain and come back. The adminis-
tration, through National Security Advisor Rice, has said that, I
would dare say, dare challenge you to find a situation in which you
have had so many high-ranking people, sitting there week after
week after week, understanding the challenge that we face in glob-
al climate change, everybody from the Vice President, the Secretary
of State, Secretary of Interior, Secretary of Agriculture. It has been
quite something to see all of these people grappling with this
issue.
Have you been at these meetings, Doctor?
Dr. EVANS. I have been to some of those meetings. Yes.
Senator KERRY. How many Cabinet-level meetings have there
been on this?
Dr. EVANS. I would be hard-pressed to count. Over a period of a
couple of months, the Cabinet was meeting probably at least week-
ly on the subject.
Senator KERRY. And can you share with us, so that we get a
sense of how this is working, who is actually in charge of this pol-
icy?
Dr. EVANS. Who is charge well, the Cabinet is meeting as
Senator KERRY. No. Who would be in charge of the global warm-
ing policy itself? Is it Administrator Whitman? Is it the Vice Presi-
dent? Is it the Secretary of Commerce?
19
Dr. EVANS. I am not aware that any individual has been des-
ignated as the lead for climate change policy. The Cabinet has been
meeting, I would say, sort of as a committee of the whole, receiving
briefings from experts on a wholeon a wide range of subjects,
ranging from science to policy options, to economic considerations,
a wide variety of things, and spent a lot of time in deliberation
there. But to the best of my knowledge, no individual person has
been identified as the principal spokesman as yet.
Senator KERRY. And in a matter of days, the talks resume at
COP6 in Bonn. Has the U.S. at this point, to your knowledge, de-
veloped a plan for those talks and what we will do with respect to
the next steps of Kyoto?
Dr. EVANS. The simple answer is, I dont know. I havent been
party to those discussions. I know that discussions have been going
on over the last couple of weeks to develop a negotiating position,
but I havent been a participant in those discussions.
Senator KERRY. If you were to be presented with a plan that es-
sentially set out the following: No. 1, set greenhouse gas emission
targets and timetables to try to achieve significant emission reduc-
tions; use flexible compliance mechanisms and more efficient tech-
nology to reduce the economic impacts on business; make signifi-
cant investments in tax incentive and R&D for new technologies;
and then give early credit for near-term actions to cut emissions
in other words if somebody cuts them, and they do it more rapidly,
they would get additional credit as an added incentive to taking
that kind of action; ensure participation of developing countries as
part of that solution; institute market-based trading systems, both
domestically and internationally; and utilize sequestration, is that
a fair outline of a sensible approach, in your judgment, to what we
might consider?
Dr. EVANS. I think that all of those items are elements that have
been discussed. I think that they have probably all been presented
in combinations, one or some together.
Senator KERRY. Is there any one of them that doesnt make sense
to you or that has problems?
Dr. EVANS. You know, most of those are not essentially scientific
questions. I mean, one of the things that I would like to be able
to do, to be honest, is to have the tools available so that if we had
a menu of options or menu of approaches such as you just outlined
with some details behind it, we would actually be able to evaluate
and tell you scientifically what we could expect the world to look
like under a scenario like that, given a range of accomplishments.
But we dont have the tools to do that right now, and so it is very
difficult to make a scientifically informed judgment as to whether
that list of admittedly plausible-sounding things that one might do,
in fact, would get us to a particular goal or would achieve a par-
ticular purpose.
Senator KERRY. Well, if you want to stick, then, exclusively to
science-based, we can pursue the policy part later, but let me come
back quickly to the science. As a scientist, are there not also bene-
fits of reducing emissions beyond simply global warming?
Dr. EVANS. Yes. That is particularly true for a number of the
species. For example, I mentioned in my testimony that soot, black
carbon, if you will, a byproduct of burning, has a positive green-
20
house effect, that causes warming. It also represents a health haz-

ard. And so if we were to take actions that reduced soot or particu-
late matter in the atmosphere, we would all realize some health
benefits from that.
I should point out that it is a two-sided issue, however. It is not
ever quite as simple as it seems. Sulfate aerosol particles, as I
mentioned, which are produced largely by burning sulfur-con-
taining fuels, coal in particular, form particles in the atmosphere
which actually reflect incoming radiation, and so sulfur, sulfates,
tend to have a cooling effect from the climate perspective, and that
cooling effect, of course, acts in opposition to the greenhouse warm-
ing.
Nevertheless, we have got a vigorous program to try and reduce
sulfates in the atmosphere exactly because of the health benefits
or the secondary benefits that you mentioned, so that some of these
issues play both ways. Tropospheric ozone is another example.
Senator KERRY. Well, it actually plays a third way, because as
the author of part of the Clean Air Act that dealt with acid rain,
nobody I know is proposing to put additional sulfates in the air in
order to induce cooling.
Senator KERRY. Because we have an acid rain problem as well
as a particulate problem.
Dr. EVANS. Exactly.
Senator KERRY. So that is not exactly a positive counter to the
problem of global warming.
Dr. EVANS. No. It is positive only in the sense that those par-
ticles provide a negative cooling influence relative to greenhouse
warming.
Senator KERRY. Agreed.
Dr. EVANS. Anyone would suggest that we reverse our plan on
sulfates.
Senator KERRY. So, in effect, if you are looking for a net positive
impact on human beings and on the planet, you want to reduce
both.
Dr. EVANS. Absolutely.
Senator KERRY. OK. Thank you.
Senator McCain.
Senator MCCAIN. Dr. Evans, lets talk about, just for a second,
observable impacts. Glaciers melting, coral reefs dyingwhat per-
cent of the coral reefs in the oceans of the world are dying, in your
estimation?
Dr. EVANS. Let me see if there is someone here with me that ac-
tually knows that number.
[Pause.]
Dr. EVANS. We will have to get back to you with a number on
that. [Refer to Appendix.] There have been a number of numbers
published. It is significant. A number of folks have published stud-
ies showing that apparent warming has led to coral bleaching
which may, indeed, be leading to the death of quite a large number
of reefs, but I dont know that number right now.
Senator MCCAIN. And, I mean, to state the obvious, when the
coral reefs die, the beginning of the food chain is eliminated, and
21
that has incredible impacts over time on marine life. Throughout

Antarctic, holeslarge lakes are appearing. Isnt that true?
Dr. EVANS. Yes. There are waters appearing. That is right.
Senator MCCAIN. I guess there is a long list of observable im-
pacts.
Senator MCCAIN. That, to me, is very troubling, and I under-
stand that sometimes these observable impacts are exaggerated by
media coverage, et cetera, but it seems to me there is a rather long
list of observable impacts which should lend some urgency to at
least modest action.
Now, Senator Kerry just quoted some statement that there have
been many, many high-level meetings in the White House, and you
said you have attended some of these. And by the way, I am very
appreciative that you are here.
I also am not appreciative, Mr. Chairman, of other members of
the administration. If this issue is, as you just described in the Na-
tional Security Advisors statement, as compelling, perhaps they
should share some of those views with the Congress and this Com-
mittee which has oversight, since any meaningful remedy is going
to require legislative action. I hope that you will get a better re-
sponse in future hearings to your invitations.
But we are very grateful you are here, Dr. Evans. So you have
this long list of observable impacts. It seems to me that would
impel us to at least some modest action to begin with. Do you have
any recommendations as to what immediate action we could take?
Dr. EVANS. I think, to be honest, the people in my business are
not of a single mind about what sort of actions to take. The sci-
entists take a look at the way the world changes and there are lots
of natural variability in the system as well. Many of the phe-
nomena which are consistent with global warming are also con-
sistent with natural variability in the climate system, and we are
just beginning to learn.
So, once you get beyond that level of understanding, I dont think
that there really is what you would call a consensus about what
to do next. Should we look at automobiles? Should we look at
power plants? Should we impose mandatory standards? Should we
have voluntary programs? I dont think scientists are necessarily
the right group to ask about what one should do in that regard.
Senator KERRY. Would the Senator yield just for one moment?
Senator MCCAIN. Sure.
Senator KERRY. But the critical point you make in your testi-
mony, which you underline, is that we have to make progress on
net emissions.
Dr. EVANS. I think that if we dont make progress on net emis-
sions, we are going to continue to accumulate CO2 in the atmos-
phere and we are going to see an accumulation and perhaps accel-
eration of the effects that you are talking about. I believe that is
true.
Senator MCCAIN. Well, first of all, in previous testimony, the
body of scientific opinion isand please correct me if I am wrong
herethat there is global warming. It just dependsit is the end
of that curve that goes on since the beginning of time, and it de-
pends on whether you believe that there is a high end of global
22
warming or a low end of global warming, but all of it is higher than

ever observed before. Is that correct?
Dr. EVANS. Absolutely correct. Yes, sir.
Senator MCCAIN. OK. So now we have a body of scientific opinion
that agrees that climate changelets call it climate changeis a
reality. The debate is not whether it is happening. The debate is
the extent of it. Is that an accurate statement?
Dr. EVANS. I think the debate is even more sharply focused than
that. There are two components: how much of what has happened
as part of some natural system of the Earth and how much is an-
thropogenic, and there is consensus that at least a significant
amount of it is caused by human beings.
But the real problem is: Given what we have now, what is a rea-
sonable projection for the future, because you are asking the sci-
entists to project into an area scientifically where, in fact, they
dont have any data or they dont have any experience. That curve
that you are referring to, if one projects it into the future, one is
sort of leaping off into an area where there really arent any data
to substantiate it right now, and you are depending upon the mod-
els that we have of the way the physical world works in a way
that, quite frankly, stresses them.
And so I think you are right in saying that there isnt doubt
about what has happened so far. I dont think that there is doubt
that some degree of that will continue to happen in the future.
Senator MCCAIN. Which?
Dr. EVANS.But the degree to which it happens in the future
which is very important is not known very well.
Senator MCCAIN. And just a few years ago, there was not this
basic unanimity of opinion, was there?
Dr. EVANS. That is correct. I think the consensus is much strong-
er right now than five years ago. That is correct.
Senator MCCAIN. With every study, we are gathering in a larger
and larger body of scientific opinion.
Senator MCCAIN. All right. Then could I just finally get back to
the Chairmans comment. You do agree that net emissions is an
issue that must be addressed.
Dr. EVANS. I think that that is true. If we are not going to con-
tinue that trend, then I think we are going to have to deal with
emissions. Is that correct?
Senator MCCAIN. How do we do that?
Dr. EVANS. At that point, you sort of begin to move personally
beyond my area of expertise. There are a lot of things that people
have mentioned. Mr. Kerry mentioned the list of topics there which
could contribute to reducing emissions, but the trade-offs on those
topics, which one or ones of them do you want to use, how strongly
do you want to apply it, when do you want to do it, those really
become more social and economic decisions than scientific deci-
sions.
Like I said, I would like the science to be able to support a dis-
cussion of those options by telling you what the world might look
like under a range of scenarios that you would put together by ex-
ercising those options. That would be the right role for science to
play in this. A choice as to which option to use, though, unfortu-
23
nately, gentlemen, you are going to have a much harder job than
the scientists have had so far in trying to sort through that.
Senator MCCAIN. Is that effort underway, to get some scientific
opinion as to what would happen under various options?
Dr. EVANS. Yes. People are working on those scenarios now. That
work is underway. I think it is an area that we are going to need
to accelerate to some degree.
Senator MCCAIN. In a collective fashion, is your organization in-
volved in that?
Dr. EVANS. We have just begun working on that. We have had
a significant activity, as you know, in climate modeling and mod-
eling the physical climate, and we have a growing program, an
evolving program, that begins to understand the impacts and pro-
vide the tools for doing that kind of interactive modeling that we
are going to need to develop.
Senator MCCAIN. Well, I thank you, Dr. Evans.
I know you have other witnesses, but, Mr. Chairman, I guess the
question is not only how we act but when do we act. How long do
you wait for this body of scientific opinion to be unanimous? You
and I can find witnesses who will disagree that there is any global
warming of any kind. We have had them before the Committee, but
I think that if you look at the historical perspective of scientific
studies, there is a larger and larger body of opinion that this is re-
ality. Climate change is a reality.
And then the question, I think, that faces all of usand the sci-
entific community has to be involved, Dr. Evansis what actions
we will take and when. And I am not sure, Mr. Chairman, if we
should wait until every scientist in America agrees that this is a
serious and almost unprecedented challenge. I thank you, Mr.
Chairman.
I thank you, Dr. Evans.
Senator KERRY. Well, Senator McCain, thank you very much,
and I thank you for your leadership when you were chairman in
pulling together a very important scientific baseline, on which this
Committee can base some judgments.
Let me say personally in answer to the question you posed ge-
nerically: I am sure that we should not wait, and the reason I am
sure that we should not wait is that there are other benefits. We
are getting trapped in the wrong debate here, and as we listen to
the President and the administration say, Well, we are studying
this, we are, in fact, being misled, because the President is not
just studying this. The President has, in fact, taken actions. He has
reneged on a campaign promise on CO2 emissions. That is an ac-
tion; that is a positive action that runs counter to some of the steps
we might have taken.
He has declared the Kyoto Treaty dead, not replacing it with a
different alternative, not saying how he could fix it, just declared
it dead. That is an action. That is an affirmative action that has
a negative consequence on doing something about this.
The President has proposed an energy plan that will increase
emissions by 35 percent, directly contrary to what you have said
here in your testimony today, that we must have a policy of no net
emissions. That is a affirmative step he has taken, not a study, an
24
affirmative step that runs directly contrary to the efforts to do

what we are trying to figure out here today.
We have a tax plan on the tablenow signed into lawthat has
reduced the options of giving incentives to create fuel-efficient vehi-
cles, to create all kinds of other options that we might have with
respect to this. Now, that is an affirmative step. It is a declaration
of a priority. And so I will just make it very clear that we are not
simply studying. We have had a series of proposals made to the
Congress and to the country that are directly flying in the face of
all of the scientific evidence and of the alarm that Senator McCain
just signaled, and that is the concern of many of us here.
The debate should not be over just whether we can predict all
of the consequences of what is going to happen scientifically. We
know that enough is happening that is negative already, and we
know that if you extrapolate that out into the future as you have,
we cant continue to add to it. We know that the consequences are
negative, so we could at least begin to take some modest steps that
might begin to deal with that.
An example: We are back down to 1980 levels in the fuel effi-
ciency standards of our vehicles, while other countries are moving
ahead and being more affirmative in trying to reduce their emis-
sions. So there are many things that we could do as a matter of
good health policy, for instance.
In 1973 when many of us remember waiting in fuel lines for
hours, we were 35 percent dependent on foreign oil. Today we are
about 55 percent dependent, and we are about to head into the
60s. Wouldnt it be wonderful if the United States of America were,
indeed, independent in terms of our energy base today? And think
of what the consequences could be for peace in the Middle East, for
not having to perhaps fight another war as we have already fought
one in the last 12 years on the subject of oil, if we were to move
to that kind of independence.
So there are, in fact, very compelling reasons: health, asthma
among children, lung disease, cancer, countless numbers of security
reasonsmatters of the human condition that should be compelling
us to move in this alternative direction. And I wonder, Dr. Evans,
if you dont accept the notion that those are compelling options that
ought to be on the table?
Dr. EVANS. I think that probably all of those options are on the
table. As I indicated earlier, I did attend some of the meetings, and
I think quite a few of those options are on the table. I think that
lots of them are under discussion right now.
As I tried to indicate before, my particular expertise is on the
science side, and basically that is what I have been asked to com-
ment on, and I have tried to indicate, those areas where the science
could help choose among those options, to try and deal with some
of the issues that you have raised there.
Senator KERRY. Well, actually, both Senator McCain and I tried
to ask you what options you might pursue, and you said, Well, that
is not really the job of the scientist.
Dr. EVANS. No. I think that the job of the scientist is to try and
evaluate those options when they are posed at this point. What
would be the consequences of
25
Senator KERRY. Well, what would be the consequence of a man-

datory target for emissions reduction? That is what I asked you. I
gave you the plan. I laid it out. That was my first question to you.
What would be the consequence of a greenhouse gas emission tar-
get and a timetable to achieve significant emissions reductions at
a specific future date?
Dr. EVANS. One would assume, from a scientific point of view,
that one would end up with somewhat lower carbon dioxide or at
least a decreased rate of increase of carbon dioxide in the atmos-
phere, but the other consequences of that, economic consequences
or what the consequences would be in other aspects of our daily
lives, frankly I dont know.
Senator KERRY. But from a scientific point of view, would that
goal be a salutary one?
Dr. EVANS. Salutary?
Senator KERRY. Would it be one we would want to achieve?
Dr. EVANS. It would be a goal that would lead to less carbon di-
oxide in the atmosphere.
Senator KERRY. And is that better?
Dr. EVANS. Better? It would
Senator KERRY. Is that desirable? Pick any word you want that
says whether or not that is something we ought to try to do.
Dr. EVANS. I think at some level the answer is yes, because at
the extreme of greatly increased carbon dioxide concentrations, I
think that the answer would be that we wouldnt want to go there,
but where along the continuum from where we are now to more is
desirable, good, safe, to use a word that was in the climate treaty,
for example, I think is really an open question right now. It is not
one to which we actually have an answer.
Senator KERRY. Would it be a smart policy to adopt a national
effort to increase all available beneficial sequestration methods,
like increased forest acreage, less deforestation? Would that help
reduce CO2?
Dr. EVANS. Possibly. I mean, I dont know.
Senator KERRY. What do you mean by possibly?
Dr. EVANS. I dont know what the trade-offs would be. I dont
know what you would stop doing in order to increase forests. I
dont know whatyou know, whether you would need other kinds
of fertilization. There is a whole range of issues associated with
pretty much any of those, and I guess what I was suggesting is
rather than trying to offer a kind of a general answer off the top
of my head about any particular policy, I think that those are ex-
actly the kinds of things that really warrant some pretty careful in-
vestigation. What are the consequences of doing one thing versus
another? What are the costs of doing one thing versus another?
How would they play together, and what would be the overall im-
pact on carbon dioxide in the atmosphere?
Senator KERRY. But isnt
Dr. EVANS. You know, but to get there
Senator KERRY. But isnt that specifically one of the options?
Didnt we have significantly more forests on this planet in the last
centuries?
Dr. EVANS. Yes.
26
Senator KERRY. And didnt we do pretty well? I mean, was that

negative? Did we seek to cut the forests because it was a bad idea?
Dr. EVANS. I dont know how to answer that, sir. I dont think
we cut the forests because it was a bad idea. I think we cut the
forests to do things with the lumber, to clear the land for agri-
culture, to make paper. There is a variety of reasons for having cut
the forests.
Senator KERRY. Well, I understand that, but arent we now spe-
cifically talking about sequestration through increased planting?
Dr. EVANS. Yes.
Senator KERRY. I mean, we are actually talking about counting
forests
Dr. EVANS. Yes.
Senator KERRY.as part of the sinks?
Dr. EVANS. Yes.
Senator KERRY. And those sinks are, in fact, what we are seeking
as a means of sequestering carbon dioxide.
Dr. EVANS. Yes.
Senator KERRY. So planting them is a benefit. I dont know why
we have to struggle to get to that.
Dr. EVANS. Well, the planting is certainly a benefit, over some
period of time, and the question honestly in the case of forests is,
what is the period of time, because once the trees start growing,
if you cut them down, what do you do with the carbon that has
been sequestered there. It is not a permanent solution.
Senator KERRY. But we are doing that right now. We are cutting
them down without even counting it.
Dr. EVANS. Yes.
Senator KERRY. I think the point is made.
Senator Ensign.
Senator ENSIGN. Thank you, Mr. Chairman.
I just had kind of a couple of general overall questions, because
I have spent a lot of time with this issuewe have an institution
in Nevada called the Desert Research Institute. They do a lot on
atmospheric studies and have a lot of scientists out there that have
been studying a lot of climatological changes.
Some of my discussions with themand I would maybe like you
to comment on some of theseare studying climate in general over
time, seems to me, to be a difficult prospect at best. Some of the
things they talk to me about, are studying some of the densities of
glaciers and the various things that they have tried to do over time
to be able to tell whether there has been changes in global tem-
peratures, but it also seems that it is difficult in that it is not a
closed system.
In other words, it is not like you are taking like in our old chem-
istry experiments that we have got a little styrofoam cup and we
have got a thermometer and we can measure that as almost a
closed system. It is not like you have the Earth and a thermometer,
and so you are measuring a closed system. Depending on where
you are taking the temperaturesare you taking them all in the
cities? We know that the more populated that you get in a city and
obviously the more emissions that you have in that city, at that
particular place, you may have an increased temperature, but it
also varies in various parts of the globe.
27
So I guess I would just like your overall comments about the dif-
ficulty in studying that, and what are the implications on setting
policy because of those difficulties?
Dr. EVANS. Well, you have raised a number of issues associated
with how you measure temperature, for example. There has been
a lot of discussion in the scientific literature about that. You re-
ferred, in particular, to the so-called heat island effect from cities.
These are phenomena which are, I think, becoming rather well un-
derstood. The heat island effect in cities and looking at the histor-
ical records is something that is known and to a large degree has
been corrected in our assessment of temperature change.
There have been the usual scientific discourse back and forth on
whether your correction is better than his, and vice versa, but I
think that the basic sense of the long-term temperature record
right now, collected from a variety of means, instrumental means,
thermometers, if you will, for the last 150 years, proxy records and
tree rings and ice cores and a wide variety of other methods for
much longer periods than that have really achieved a large degree
of consensus in the scientific community, so this basic question of
whether it is getting warmer or not, or what does the basic pattern
of temperature change look like, I personally dont think has a
huge degree of controversy associated with.
Yes. There are people with different opinions, and I wont say
that this is a consensus view or unanimous view. But it is one that,
I think, represents a strong sense of what the scientific community
believes, those measurement problems notwithstanding.
Now, you do highlight the need, though, for a real observing sys-
tem if we want to know what is going on, if we want to better
initialize our climate models to understand the future, if we want
to have a better understanding of the way the world systems work
so we can separate natural variability from warming induced by
the things we have put in the atmosphere, having a robust, global
climate monitoring system is very important.
There have been a number of plans offered from doing that. We
derive some data these days from satellites. There is a long-term
instrumental record. There are a variety of organizations world-
wide that have proposed systems for doing that, and we are mak-
ing progress in implementing these worldwide observing systems.
We probably need to accelerate that progress for the future.
But to answer your specific question, I think that there is a good
sense in the scientific community that a number of those issues
that you raised are ones that have been addressed and where we
still find a significant record of warming.
Senator ENSIGN. The things that I have read in my literature
and my discussions have been that there is not unanimity among
scientists. Hopefully, there is never unanimity, because
Dr. EVANS. Right.
Senator ENSIGN.then we are not questioning in the way that
we should question in science. But given that, there is a fairly
strong consensus that there has been an increase in the tempera-
ture of the planet in the last 100 years. Can you just comment on
how significant that temperature increase, how much has been in-
duced, and what percentage of that has been induced by humans,
or have we been able to determine that, and how significant it is
28
compared to natural increases or decreases in temperature, espe-

cially when we are dealing with geologic time?
Dr. EVANS. Well, when you are dealing with geologic time, of
course, you can look back through the Ice Ages or the age of the
dinosaurs, and you will find climates for the Earth which are very
different than the one that sustains our livelihoods right now. So
I am not sure that that is really helpful. The Earth certainly has
had a variety of different climates in its history. There is no doubt
about that.
But the temperature changes that we have seen in the last 150
years, lets say, basically since the Industrial Revolution, really are
unprecedented in the record of, say, 1000 years prior to that, and
other properties associated with the temperature fluctuation are
probably not really detected or are separate from the kinds of vari-
ability, natural variability, that we would expect to see in the sys-
tem going back even 10,000 years. So it is quite significant, the
changes that we have seen in the lastcertainly over the course
of the 20th Century.
And the body of scientific evidence suggests that at least a large
fraction of that change is due to the increase of greenhouse gases
that we have observed. The best that is measured or the way that
we get our arms around that most accurately is by taking the mod-
els that we have that capture all of the physics and chemistry that
we know, and running those models with a variety of scenarios;
that is, include the greenhouse gases, exclude the greenhouse
gases, include the sulfates or the particles that come from volcanic
eruptions, changes in solar variability, the sulfates that increased
and then decreased as a consequence of our actions in the atmos-
phere.
And what we find is that we get the best agreement with the
measured temperature record over the last 150 years, when all of
those factors, including the man-caused increases in greenhouse
gases are included in those models.
Senator ENSIGN. The question, though, that you didnt answer
was: When we are looking at the percent of man-caused versus nat-
uralyou mentioned solar. From what I understand, the changes
on the sun can be incredibly significant as far as what happens on
the Earth, not only temperature-wise, but obviously as far as all
kinds of electromagnetic activity and radiation and the various
things that can happen here.
And the reason that I am asking the question is I think it is im-
portant for policymakers to understand, you know, how big of an
impact are we making in the negative to our planet temperature-
wise or environmentally, so that if we make changes, how signifi-
cant of changes can we make percentage-wise as far as will we
really make any difference by the policy, because when you are
doing any of these, you do have to take costs into account? You
have to take into account a lot of other things. So it would be nice
if we at least had some kind of a handle on this.
Dr. EVANS. Well, like I said, we have good measurements of a lot
of the sorts of natural variability in the system over the last few
decades. We have good measurements, for example, of solar input
and solar variability over the last 30 years while we have been fly-
ing satellites and have good global measurements of those data.
29
Those kinds of variabilities are included in the models. They

have an impact, but solar variability, quite frankly, is rather small.
There are other impacts due to variations in the sun. As you know,
NOAA does operate the Space Environment Center that monitors
solar activity and provides warnings and forecasts of solar events,
which can have impacts on all sorts of aspects of daily life, changes
in the electric grid and health and safety of astronauts and sat-
ellites. There is a wide range of potential impacts of the solar vari-
ability on the Earth.
We have actually been monitoring solar variability through the
last two or three solar cycles, including that kind of measured vari-
ability, and the sun doesnt begin to account for the kinds of
changes in temperature that we have seen.
Now, in looking at the two bursts of change, if you will, in tem-
perature, the early part of the 20th Century and the latter part of
the 20th Century, more of the temperature change can be ascribed
to some of these naturally occurring factors, but the changes that
we have seen over the last 50 years dont seem to be accounted for
that way.
Senator KERRY. Thank you very much, Senator.
Senator Snowe. We are going to move to the next panel right
after Senator Snowe.
STATEMENT OF HON. OLYMPIA J. SNOWE,

U.S. SENATOR FROM MAINE
Senator SNOWE. Yes. Thank you, Mr. Chairman, and I will be
very brief.
But, Dr. Evans, based on what we knowand obviously we have
a significant body of work with respect to climate change and how
it is affecting our world in which we livedo you think that we can
make some policy changes right now to effect global warming and
climate change? I mean, how long do we havehow far do we have
to go and how long do we have to take before we can initiate policy
changes?
Dr. EVANS. That is a very difficult question. We have taken
about 150 years in practical terms over the industrial Revolution
to sort of get where we are now. The climate system responds rath-
er slowly. We know that we are going to see increased warming in
the oceans. Even if we were to reduce emissions dramatically right
now, we are going to continue to see ocean warming, because the
processes are very long and slow.
That means that actions that we take will have consequences
over a long period of time. It also suggests that dramatically taken
actions are not likely to produce dramatically evident results, and
so I think that we have time to take a look, to consider what we
need to do carefully, but we do need to recognize that the con-
sequences of our actions or inactions have very long time constants
associated with them.
Senator SNOWE. But we know that human activity obviously has
a significant impact on climate change. For example, why not take
steps, like closing the loophole on CAFE standards for SUVs?
Knowing that SUVs contribute significantly to carbon dioxide emis-
sions, far more than passenger cars. That is a step that we know
30
could help in improving the atmosphere. So why not take that kind
of step? Would the administration be supportive of that initiative?
Dr. EVANS. Senator Snowe, I have tried to confine most of my an-
swers as best as I have been able to.
Senator SNOWE. Well, let me ask you
Dr. EVANS. Try and understand the scientific impact of what is
happening. If we were to take any steps that reduced the emissions
of CO2, that would probably have a mitigating effect or a slowing
effect on the kinds of change that we are attributing to the accu-
mulation of CO2.
Senator SNOWE. So transportation obviously is a significant con-
tributor.
Senator SNOWE. OK. So then obviously it could have an impact.
And, Mr. Chairman, I would even recommend that this Committee
have a hearing on closing the CAFE standards loophole on SUVs,
because I do believe that it could have a major effect. In fact, if we
implemented a standard of 27.5 miles per gallon, we could reduce
carbon dioxide emissions by more than 200 million tons every year.
I think that has a significant effect and a significant result.
I think the time has come to take policy steps that will have an
impact, however incremental they might be. But the fact is we
have to begin to take steps. I think the National Academy of
Science report on the effectiveness of CAFE standards is a wake-
up call for where we are today. So I would hope that the adminis-
tration, beyond looking to further studies, should also be consid-
ering what steps can be taken, what legislative measures could be
taken, so that we can begin to address this perilous issue when it
comes to our environment.
Senator KERRY. Senator Snowe, thank you very much. Let me
just say that Senator McCain and Senator Hollings and I are put-
ting together legislation right now, even as we speak. It will be
ready in a few days, and we will be proceeding forward on that as
well as several other initiatives.
[The prepared statement of Senator Snowe follows:]
PREPARED STATEMENT OF HON. OLYMPIA J. SNOWE, U.S. SENATOR FROM MAINE

Thank you, Mr. Chairman, and thank you for holding this hearing today, as this
is an appropriate follow up to the climate change hearings Ranking Member McCain
has held both in the 106th Congress and in the 107th, the latest being this past
May. This Committee does have a large responsibility in the oversight of the climate
change issue and Im pleased to see that responsibility being exercised.
In Senator McCains hearings, we heard from renowned scientists with varying
opinions on global warming, and just weeks ago, and at the Presidents request, a
well respected and balanced panel of U.S. scientists came out with a report that
there is strong evidence that warming over the past 50 years is attributable to
human activities, and significant increases in global temperatures and sea level can
be projected. I believe this National Academy of Science Report is the wake up call
for many who have not yet gotten engaged in the issue of climate change as we now
have a growing collective picture of a warming world over the past century. Climate
change is a perilous environmental problem that deserves to be addressed on both
the domestic and international level.
It appears clear that regional climate changes, particularly temperature changes,
are affecting physical and biological systems. Many human systems, the scientists
say, are sensitive to climate change, and the potential for large scale and possibly
irreversible impacts pose risks that have yet to be quantified. We must recognize
that those around the globe with the least resources have the least capacity to adapt
and are the most vulnerable to these changing climate processes.
31
The United States had a large part in the development of a climate change con-
vention treaty at the Earth Summit in Rio de Janeiro in 1992. President George
H. W. Bush went on to sign the UNFCCC Treaty and it was unanimously ratified
by the U.S. Senate. I believe Congress prudent response to climate change is to
work for the adoption a portfolio of clear and concise U.S. actions aimed at mitiga-
tion, adaptation, and research as the issue is one with unique long-term effects in-
volving complex interactions between climatic, environmental, economic, political,
institutional, social and technological processes.
As one of the many pieces we can consider, I would like to suggest support for
a simple changethe Feinstein-Snowe bill that closes the SUV loophole by raising
the fuel efficiency, or CAFE , standards for light truck vehicles to meet those ex-
pected of passenger vehicles. The overall fuel economy of new cars and trucks sold
in America, after improving slightly a year ago, has dropped back to the lowest lev-
els since 1980, mainly because of the lower fuel efficiency standards currently set
for the popular SUVs and minivans.
It is estimated that fixing the SUV loophole will save one million barrels of oil
a day, reduce oil imports by 10 percent, cut Americas trade deficitoil deficits are
the largest of thissave consumers money at the gas pump, and provide healthier
and cleaner air benefits, and, very importantly, prevent more than 200 million tons
of carbon dioxidethe major greenhouse gas connected to global warmingfrom
going into the atmosphere. This legislation is under the jurisdiction of the Com-
merce Committee and I urge the Chair to hold a hearing on the Feinstein-Snowe
bill.
I have asked the Administration for support of the SUV loophole bill as one way
to move toward reducing our carbon dioxide emissions, and I look forward to hear-
ing about what the Administrations strategies are as we work through the domestic
and international issues relating to climate change.
Thank you, Mr. Chairman.
Senator Dorgan.
Senator DORGAN. Mr. Chairman, I was delayed, so I will defer
questioning. I have read Dr. Evans statement. Thank you very
much for appearing, and I will be here for the next panel.
Senator KERRY. Thank you.
Senator Stevens.
Senator STEVENS. No. Thank you.
Senator KERRY. Dr. Evans, thank you very, very much. The only
thing I would conclude by saying is that, as you have pointed out,
the slowness of response is a compelling reason to think about
some of the things like Senator Snowe and others have suggested.
I gather the half-life of existing CO2, where we are right now is
about 70, 80 years.
Dr. EVANS. That is about right. Yes.
Senator KERRY. So what we have already put out there is going
to continue to do the current rate of damage for the next 70 years,
no matter what we do, unless you and others discover some means
of reversing, i.e., of rapid sequestration that takes CO2 out of the
atmosphere. Is that correct?
Dr. EVANS. That is a fair assessment. Yes.
Senator KERRY. So it might even make more compelling the no-
tion that even without knowing fully what those consequences are,
we who make policy ought to be more thoughtful about being pre-
cautionary and trying to avoid catastrophe.
Dr. EVANS. I think that those of you who make policy at this
point have some very difficult challenges in front of you. I think
that you have got potentially very significant decisions to make,
and I am afraid that in the science community, we are not giving
you all the tools that I wish that we were to help make those deci-
sions earlier.
32
Senator KERRY. Well, this is a great segue into the next panel.
I dont find it as economically challenging or policy challenging as
some people suggest. There are some wonderful technologies al-
ready out there. There are things that we can do that create whole
new sectors of our economy, countless numbers of jobs, huge new
opportunities, all of which can take us down a different road. So
I dont think we have to view this as a difficult challenge.
The Japanese automobile manufacturers and others are moving
rapidly to provide hybrid automobiles, to get up to 75, 80 miles per
gallon very quickly. I suppose the most significant question is why
we are always the last ones to move in these directions, but I think
the opportunities are there, and that is what we are going to ex-
plore in the next panel.
Thank you, Dr. Evans, very much for being here.
Dr. EVANS. Thank you.
Senator KERRY. If I could invite the next panel to move up as
rapidly as possible, we will begin right away with Dr. Kammen,
and then Mr. German, Mr. Miller, Mr. Duffy, and Ms. Koetz.
Oh, I apologize. We have a plane problem I wasnt aware of, so
Mr. Miller, if you would lead off. I understand you have a flight
you have to get, and I apologize for any delay on that.
STATEMENT OF WILLIAM T. MILLER, PRESIDENT,
INTERNATIONAL FUEL CELLS
Mr. MILLER. Thank you, Mr. Chairman. I am president of Inter-
national Fuel Cells, which is a subsidiary of United Technologies
Corporation. I appreciate the opportunity today to testify regarding
the role of fuel cells in addressing climate change.
Fuel cells are an important climate change technology, because
when fueled with hydrogen, they do not produce any carbon dioxide
emissions. When fueled by natural gas, fuel cells produce substan-
tially less carbon dioxide emissions than other technologies. IFC
has a long history in fuel cells. We have produced the fuel cells for
every U.S. manned space mission since 1966, including the space
shuttle. These fuel cells produce the electricity for the orbiter when
it is in space and all the drinking water for the astronauts.
IFC is also the only company in the world currently producing
a commercially available fuel cell. That unit, the PC25TM, produces
200 kilowatts of electric power, which is enough to power roughly
150 homes. Currently these units power schools, hospitals, military
installations, data processing centers, and other facilities.
Fuel cells are electro-chemical devices that combine hydrogen
and oxygen to create electricity. This is a single fuel cell, capable
of generating one-third of a kilowatt of electricity. You put hydro-
gen in the orifices on the end, oxygen from air under these orifices,
and you produce electricity, water, and heat. This produces a third
of a kilowatt. If you need more, you just stack one on top of another
to produce more kilowatts.
Fuel cells do not use combustion to produce electricity, and it is
that combustion that creates NOX, which is responsible for smog,
and SOX, which is responsible for acid rain. When pure hydrogen
is the fuel source, fuel cells produce no harmful emissions at all,
including no carbon dioxide, which is the primary manmade green-
house gas involved in global warming.
33
Because hydrogen is not yet readily available as a fuel, we use

fuel processors to reform commonly available hydrocarbon such as
natural gas into hydrogen fuel for the fuel cell. When running on
these hydrocarbons, fuel cells do produce carbon dioxide, but sub-
stantially less carbon dioxide, once again, than other means of elec-
tricity generation.
IFC has sold more than 220 fuel cell power plants to customers
in 16 countries on five continents. Examples of installations range
from the police station in New York Citys Central Park to hos-
pitals in several states, and to the main postal facility in Anchor-
age, Alaska. We have 32 PC25s operating in states represented by
Senators on this Committee.
Our total fleet of PC25 power plants has accumulated more than
4.2 million hours of combined operation. They operate day or night,
regardless of weather. Our installed base of PC25s has already pre-
vented nearly 800 million pounds of carbon dioxide emissions and
more than 1412 million pounds of NOX and SOX compared with
typical U.S. combustion-based power plants. The U.S. Environ-
mental Protection Agency recognized IFC last year with a climate
protection award because of this achievement.
Building on this success, we are now developing fuel cell tech-
nology for residential and transportation applications. IFC is cur-
rently developing a 5-kilowatt unit for homes and small buildings.
We expect to begin marketing these devices in 2003.
For the transportation market, IFC is working with a number of
car and bus manufacturers to develop fuel cell vehicles. Our zero
emission hydrogen fuel cells now power four Hyundai SUVs. These
vehicles are the worlds first zero emissions SUVs and get the gaso-
line equivalent of 50 to 60 miles per gallon.
We have also developed fuel processors capable of taking pump-
grade gasoline and reforming it, and using it to power a fuel cell.
Such technology will allow fuel cell vehicles to use the existing gas-
oline infrastructure until a hydrogen infrastructure is in place.
Cars, buses and trucks now represent about one-third of carbon
dioxide emissions in the United States. By developing the nec-
essary hydrogen infrastructure and fuel cell vehicles, we can take
ground transportation out of the climate change debate.
But there is still one major barrier to the introduction of fuel
cells for these various applications, and that is cost. IFC and other
fuel cell companies are now developing new fuel cells, like the one
I showed you earlier, that are smaller, lighter, and cheaper to
produce than the ones presently in manufacturing. This new tech-
nology, along with higher production volume, should help us to re-
duce the cost of fuel cell power plants by two-thirds from today to
2003, so from $4,500 a kilowatt today to $1,500 a kilowatt in 2003,
and the cost of fuel cell power plants will trend down even further
beyond that. If we achieve the goal of automotive production, costs
may decline to as low as $50 a kilowatt.
In conclusion, let me say that fuel cells are already helping to re-
duce carbon dioxide emissions today. Further commercialization of
this technology will produce not only climate change benefits but
improved air quality, independence from foreign oil, and technology
leadership for the United States.
34
I look forward to working with you, Mr. Chairman, members of

the Committee, and other interested parties, to accelerate the com-
mercialization of fuel cell technology. And I would be happy to an-
swer your questions later. Thank you.
Senator KERRY. Mr. Miller, thank you very much. Thank you
also for hitting the timing right on the button. It is helpful to all
of us. Do you have time to stay through the other testimonies for
questions?
Mr. MILLER. I will stay through.
Senator KERRY. You are able to?
Mr. MILLER. Yes.
Senator KERRY. That would be very helpful. Thank you for doing
that.
[The prepared statement of Mr. Miller follows:]
PREPARED STATEMENT OF WILLIAM T. MILLER, PRESIDENT,

INTERNATIONAL FUEL CELLS
Good morning. My name is William Miller. Im the President of International Fuel
Cells (IFC), a subsidiary of United Technologies Corporation (UTC). UTC is based
in Hartford, Connecticut and provides a broad range of high-technology products
and support services to the building systems and aerospace industries. UTCs prod-
ucts include Carrier air conditioners, Otis elevators and escalators, Pratt & Whitney
jet engines, Sikorsky helicopters, Hamilton Sundstrand aerospace systems and fuel
cells by International Fuel Cells.
IFC has a long history in fuel cells. Weve produced the fuel cells for every U.S.
manned space mission since 1966, including the Space Shuttle. These fuel cells
produce the electricity for the orbiter when it is in space and all the drinking water
for the astronauts. IFC is also the only company in the world currently producing
a commercially available fuel cell power plant. That unit, the PC25TM, produces 200
kilowatts, which is enough to power roughly 150 homes. Currently, these units
power schools, hospitals, military installations, data processing centers and other fa-
cilities.
Fuel cell technology is a reality today in space and commercial/industrial applica-
tions. By the end of this decade it will also power homes, cars, trucks and buses.
Fuel cells offer great potential for addressing climate change. Current fuel cell
technology using hydrocarbon feed stocks produces 60% more electricity per pound
of carbon dioxide emissions than the average US combustion based power gener-
ating system. Using hydrogen as the fuel will enable us to eliminate CO2 emissions
from the fuel cell power plants operation.
Unlike other environmentally favorable solutions such as solar or wind power,
fuel cells can be used as a continuous source of base powerindependent of time-
of-day or weatherfor critical facilities, thereby offloading demand and providing
independence from the grid.
Fuel Cell Description
Fuel cells are an electrochemical device that combines hydrogen and oxygen to
produce electricity, with only water and heat as the by-products. Fuel cells do not
use combustion to create electricity. It is combustion that creates NOX, which is re-
sponsible for smog, and SOX, which is responsible for acid rain.
IFC History and Current Fuel Cell Applications
International Fuel Cells is the world leader in fuel cell production and develop-
ment for commercial, transportation, residential and space applications. IFC is the
sole supplier of fuel cells for U.S. manned space missions and is the only company
in the world producing a commercial fuel cell system, the PC25TM power plant.
IFCs headquarters, research and development, and manufacturing facilities are
located in South Windsor, Connecticut, and cover more than 350,000 square feet.
IFC employs some 750 engineers, researchers, managers and production workers.
Since 1966, IFC fuel cells have provided electrical power, as well as drinking
water, for more than 250 astronauts on all of the United States manned space
flights. Each space shuttle mission carries three IFC 12-kilowatt fuel cell units.
These units have accumulated more than 81,000 hours of fuel cell operating experi-
ence.
35
IFC is also the only company in the world currently producing a commercially
available fuel cell power plant. That unit, the PC25, produces 200 kilowatts, which
is enough to power roughly 150 homes. IFC has delivered more than 220 PC25s to
customers in 16 countries and five continents.
This PC25 fleet of fuel cells has accumulated more than 4 million hours of oper-
ational experience in a range of operating environments. The PC25 system requires
only routine maintenance and has a life of 40,000 hours, or five years, before a
major overhaul is required. IFC has 32 PC25s operating in states represented by
Senators on the Commerce, Science and Transportation Committee.
IFC is now developing fuel cell technology for residential/light commercial and
transportation applications, including buses, fleet vehicles and cars.
Environmental and Climate Change Benefits of Fuel Cells
When pure hydrogen is the fuel source, fuel cells produce no harmful emissions
no carbon dioxide, which is the primary man-made greenhouse gas involved in glob-
al warming and no NOX or SOX, the pollutants that cause smog and acid rain.
Hydrogen is not yet readily available as a fuel. Because of this, fuel cell power
plants incorporate fuel processors to reform commonly available hydrocarbons such
as natural gas, propane, or methane from waste water treatment plants into hydro-
gen fuel.
Even when running on these hydrocarbons, IFCs fuel cells are still very climate
friendly and efficient. They produce 60% more electricity per pound of carbon diox-
ide emission than the average US combustion based power generating system.
IFCS installed base of PC25 power plants has already prevented nearly 800 mil-
lion pounds of CO2 emissions and more than 14.5 million pounds of NOX and SOX
compared with typical US combustion-based power plants. The U.S. Environmental
Protection Agency recognized IFC last year with a Climate Protection Award in rec-
ognition of these accomplishments.
Fuel Cells are More Efficient Energy Producers
Fuel cells, because they do not use combustion, are significantly more efficient,
meaning they produce more energy from the same amount of fuel
For example, in the electricity-only mode of operation, IFCs PC25 unit achieves
approximately 40% efficiency. However, fuel cells are generally installed at the point
of use, so the waste heat from the fuel cell can be used for such things as space
heating. This is known as co-generation. When used in co-generation applications,
the PC25 can reach efficiencies as high as 87%.
Fuel Cells for Distributed Generation
Distributed generation is increasingly being recognized as one way to address
both the need to reduce the demand on the current electric distribution system and
to provide assured power at facilities such as data centers where uninterruptible
power is a requirement.
As our society increases its reliance on sophisticated computer systems, very short
power interruptions can have profound economic consequences. In 1996 the Electric
Power Research Institute reported that US businesses lose $29 billion annually from
computer failures due to power outages and lost productivity.
Locating distributed generation assets at the point of use also eliminates trans-
mission line losses that can run as high as 15%.
Fuel cells are an excellent distributed power asset because they are clean, quiet
and small enough to provide power at the point of use. For example, two IFC PC25s
are located inside the Conde Nast skyscraper at Four Times Square in New York
City.
IFCs PC25s are used in a number of installations in this capacity. Some exam-
ples:
The Central Park Police Station in New York City uses a PC25 to provide all
the power for the facility on a 247 basis completely independent of the grid.
In Rhode Island, a PC25 system provides power for the South County Hospital.
The installation supplies base load electrical and thermal energy to the hospital
where it helps ensure clean, reliable power for sensitive medical equipment and
systems such as CAT scanners, monitors, analyzers, and laboratory test equip-
ment. If there is a grid outage, the PC25 automatically operates as an inde-
pendent system, continuing to power critical loads at the hospital. Heat from
the installation provides energy for space heating, increasing the fuel cells over-
all efficiency.
The largest commercial fuel cell system in the world is currently operating at
a U.S. Postal Service mail-processing center facility in Anchorage, Alaska. The
36
PC25 units operate in parallel to the grid and are owned and operated by the
local utility. The fuel cells can either provide power to the U.S. Postal Service
or provide power back to the grid. If the grid fails, a near instantaneous switch-
ing system automatically disconnects the grid and allows the fuel cells to pro-
vide uninterrupted power.
One of IFCs installations at the First National Bank of Omaha involves four
fuel cells as the major component of an integrated assured power system that
is meeting customer requirements for 99.9999% reliability.
A number of schools and colleges in Massachusetts, New York and New Jersey
have purchased fuel cells to ensure clean, efficient, and reliable power for data
processing and computer operations, provide basic electricity and heating needs
as well as use the units as a teaching tool for students. For example, Cape Cod
Community College expects its fuel cell to help save the college about $54,000
of the $185,000 in energy costs each year. This fuel cell power plant installation
is part of a comprehensive energy savings performance contract agreement
being implemented by NORESCO.
As these examples illustrate, fuel cells are very flexible in meeting customers
power requirements for base load, assured power, emergency back up and co-genera-
tion. In addition, fuel cells are being used in grid connected, grid independent and
grid parallel applications.
Renewable Energy
Fuel cells are already using renewable energy sources.
IFC and the US Environmental Protection Agency (EPA) collaborated in the early
1990s on a greenhouse gas mitigation program that continues to bear fruit today.
Initial efforts targeted landfills and the development of gas cleanup systems that
enable fuel cells to use waste methane to generate electricity and resulted in the
issuance of several patents jointly held by EPA and IFC. These systems avoid the
use of fossil fuels as the fuel source.
Follow-on work has focused on anaerobic digester off-gases (ADGs) from waste-
water treatment facilities. This technology has been implemented successfully at
PC25 installations in Yonkers, New York; Calabasas, California; Boston, Massachu-
setts; and Portland, Oregon as well as Cologne, Germany and Tokyo, Japan.
Residential and Light Commercial Fuel Cell Application
IFC, along with several other companies, is currently pursuing residential and
light commercial fuel cell applications for homes and businesses using next-genera-
tion proton exchange membrane (PEM) fuel cell technology.
IFC is drawing on its experience in commercial programs to develop a five-kilo-
watt PEM fuel cell system suitable for homes and small commercial buildings. IFC
is teaming up with its sister UTC unit Carrier Corp., the worlds largest maker of
air conditioners, as well as Toshiba Corp. of Japan and Buderus Heiztechnik of Ger-
many on this effort.
IFC is currently testing residential power plants and plans to have residential
fuel cell units commercially available in 2003. Initial markets will include off-grid
residential (an estimated 150,000 Americans live off the grid today), telecommuni-
cations providers who need assured power for cell towers and public buildings such
as fire stations that required assured power.
Transportation Fuel Cell Applications
In the transportation arena, IFC is aggressively developing quiet, highly efficient
ambient-pressure PEM fuel cells and gasoline reformation technology for auto-
mobiles, heavy-duty trucks and bus applications. Fuel reforming technology allows
fuel cells to operate on pump gasoline.
IFC is currently working with major automobile manufacturers, including BMW
and Hyundai and with the U.S. Department of Energy on development and dem-
onstration programs for automobiles.
Last year, for example, IFC replaced the internal combustion engine in a Hyundai
Santa Fe Sport Utility Vehicle with its zero emission Series 300 75-kilowatt hydro-
gen powered fuel cell. This vehicle was featured at the grand opening ceremony of
the California Fuel Cell Partnership on November 1, 2000. This is the worlds first
zero emission SUV and gets the gasoline equivalent of 50 to 60 miles per gallon.
Pure water vapor is the only by-product of this fuel cell power system. Hyundai and
IFC have put two fuel cell powered Santa Fes into driving service in California.
The IFC vehicle power plant is quiet and efficient. Its unique because it uses a
near ambient pressure system, which substantially increases its efficiency. Other
37
transportation fuel cells require a compressor, which is a parasitic drain on the sys-
tem because it uses part of the electricity produced by the fuel cell.
The IFC system has fewer parts, which translates into lower costs for the con-
sumer and is smaller and hence easier to put in a car. To date, we have dem-
onstrated the following capabilities with the IFC/Hyundai Santa Fe fuel cell vehicle:
Performs with undetectable noise levels;
Achieves maximum power output of 75 kW and a top speed in excess of 70 mph;
Fills the vehicles fuel tank with hydrogen to a pressure of roughly 3,000 psi
in less than 3 minutes; and
No infringement on passenger or cargo space.
In addition, IFC has also developed fuel cell auxiliary power units (APUs) that
can power all the electronic components of a car thus removing this heavy power
demand from the engine. In 1999, BMW demonstrated at the Frankfurt Auto Show
a Series-7 vehicle featuring a 5-kilowatt hydrogen IFC fuel cell that powered the
onboard electrical systems and air conditioning. During the two-week exhibition, we
used the APU to run the cars lights and radio continuously without the engine run-
ning.
For buses, IFC has teamed with Thor Industries, the largest mid-size bus builder
in North America and Irisbus, one of the largest European bus manufacturers, to
build fuel cell powered zero emission transit buses. These prototype vehicles will
take to the road this year.
Hydrogen Future
Fuel cells are already beginning to bring forth the clean, renewable, hydrogen fu-
ture.
Some examples:
IFCs hydrogen fuel cells have been used in space applications since 1966.
IFC operated a 200-kilowatt fuel cell unit in Germany running on hydrogen.
BMW has incorporated a hydrogen fuel cell auxiliary power unit into a Series
700 automobile.
IFC has installed hydrogen-powered fuel cells into four Hyundai Santa Fe
sports utility vehicles.
IFC is developing hydrogen fuel cell buses with US and European partners.
Buses and fleet vehicles, since they return to a central location each day, are a
near term opportunity to create the necessary hydrogen infrastructure including
production, distribution and storage capability.
Meanwhile, a number of companies are making substantial progress on hydrogen
production and storage. Ultimately, the vision is to produce hydrogen for diverse
fuel cell applications through the use of renewable energy such as hydroelectric,
solar and wind power.
Challenges
The cost of fuel cells has been one of the greatest impediments to their commer-
cial use. However, the costs have been reduced dramatically in the past two dec-
ades. The space shuttle fuel cells, developed in the late 1970s, cost roughly $600,000
per kW. The PC25 commercial stationary unit, which was developed in the early
1990, has an installed cost today of $4,500 per kilowatt.
IFC and other fuel cell companies are now developing new fuel cells that are
smaller, lighter and cheaper to produce. This new technology, along with higher pro-
duction volume, should help reduce the cost of fuel cell power plants by two-thirds
by 2003, from $4,500 a kilowatt to $1,500. The cost of fuel cells will continue to
trend down. If we achieve the goal of automotive production, the cost may decline
to as low as $50 per kilowatt.
Government Actions
There are a number of things the federal government can do to help accelerate
the commercialization of fuel cell technology. These include providing financial in-
centives, eliminating regulatory barriers, funding government purchases and dem-
onstration programs and continuing the nations commitment to hydrogen research
and development.
38
Summary
Fuel cell technology represents an important component of the solution to climate
change. This technology is already reducing carbon dioxide emissions and using
methane as a fuel source. By the end of the decade, fuel cells will power homes,
cars, trucks, buses and businesses. Widespread commercialization of fuel cells and
establishment of the necessary hydrogen infrastructure will enable a wide spectrum
of energy applications to eliminate their emissions of greenhouse gases without sac-
rificing our standard of living. Fuel cells powered by hydrogen that is produced
using renewable energy is the long-term vision, and substantial progress has al-
ready been made. We look forward to working with Members of the Senate Com-
merce Committee and other stakeholders to ensure this vision becomes a reality.
Thank you, Mr. Chairman.
710mill1.eps
39
710mill2.eps
40
710mill3.eps
41
Senator KERRY. Do you have an order you want to proceed in, or,
Mr. Koetz, why dont you go next, and then we will run down the
table to Mr. Duffy, Mr. Kammen, Mr. German.
STATEMENT OF MAUREEN KOETZ, DIRECTOR OF ENVIRON-

MENTAL POLICY AND PROGRAMS, NUCLEAR ENERGY INSTI-
TUTE
Ms. KOETZ. Thank you, Mr. Chairman, members of the Com-
mittee. On behalf of NEIs over 270 member companies rep-
resenting a multi-billion-dollar industry operating in almost every
state in the nation, I am pleased to be here to discuss the role of
nuclear technology in mitigating the potential harmful effects of cli-
mate change.
As the old industrial economy transitions into the new digital
economy, one thing has remained certain. The backbone of sound
economic policy is effective energy policy. As President Bush point-
ed out in his speech announcing the new national energy policy,
our history was built on energy that was abundant and affordable
and reliable. So, too, will be this nations energy future. NEI
agrees, and we are delighted to be here among many of the emerg-
ing and advanced technologies needed for that energy future.
The challenges of providing abundant, affordable, and reliable
energy have historically relied on technological advancements to se-
cure supplies and avoid and minimize environmental degradation.
Baseload fission electricity production is a successful example of
advanced clean energy technology that is good for the environment,
supplants foreign fuel sources, and manages economic risks that
can result from price or supply fluctuations.
Nuclear energy was first recognized as an emission control tech-
nology for both conventional air pollutants and greenhouse gases in
the 1950s and 1960s. Since then, its dual capability to provide se-
cure, reliable baseload supply with minimal environmental impact
has made nuclear energy the backbone of an energy system that
is not only abundant, reliable, and affordable, but cleaner and more
environmentally friendly as well.
As we look to ways to effectively control our greenhouse gas
emissions, nuclear electricity will once again play a key role. In his
recent address on climate change, President Bush made a critical
observation regarding the path forward on climate change, and he
statedand I quoteThere are only two ways to stabilize con-
centration of greenhouse gases. One is to avoid emitting them in
the first place. The other is to try to capture them after they are
created.
Avoiding emissions is our specialty. In the year 2000 alone, gen-
erating with nuclear plants in lieu of baseload alternatives avoided
174 million metric tons of carbon-equivalent emissions. And just to
sort of scale that to what Mr. Miller just told you in terms of the
capability of fuel cells, that is actually 1 trillion pounds of CO2.
Give you something to shoot for.
Without this critical contribution, the difference between current
U.S. greenhouse gas emission levels and our 1990 baseline estab-
lished in the framework convention on climate change would dou-
ble. And just to give you some idea, too, since 1973, the total avoid-
42
ed emissions from using nuclear power are over 2 billion metric

tons of carbon, and again that is approaching 6 billion tons of CO2.
The value of avoiding emissions is not uniquely known and un-
derstood by U.S. leadership. On the contrary, our trading partners
and competitors fully intend to take advantage of concentrated,
large-scale nuclear energy sources to meet their objectives for cli-
mate change abatement. Japan has announced plans to build nu-
clear plants to meet emission targets. The United Kingdom is re-
evaluating its nuclear energy program, and Finland is planning a
new plant for the European Union grid. Even Germany, long
thought to be on a glide path to nuclear phase-out, has effectively
postponed any potential plant retirements until well after the time-
frame to meet its targets under the Kyoto protocol.
In all, the approximately 150 nuclear plants in Western Europe
will be a key technology used by the EU to meet global climate
goals without compromising economic growth, and the same is true
for the Pacific Rim as well as advanced developing countries like
Brazil and South Africa.
In sum, as we tackle the issue of climate change, the United
States cannot afford to lose its leadership in advanced nuclear en-
ergy. Our designs have been developed to provide even greater
safety, improve production efficiencies and additional cost reduc-
tions. We employ members of our communities in high-paying jobs,
contribute to a tax base that pays for education and municipal
services, and we support other economic activities that help grow
and improve the standard of living for more and more Americans.
And just to play Ms. Snowes point about transportation, just to
give you an idea, the New York City subway uses 1.8 billion kilo-
watts of electricity annually. Without large-scale baseload genera-
tion, those kinds of transportation programs that are in and of
themselves an emission control program, cannot run.
Right now many nuclear plants in the United States make elec-
tricity for little more than a penny a kilowatt, and that includes
the costs of eliminating greenhouse gases and other conventional
pollutants. As we recognize our responsibilities to the world com-
munity to support sustainable economic development, our invest-
ment in nuclear technologies continues to pay dividends. For exam-
ple, using uranium for electricity in the developed world slows the
depletion of limited global energy resources that are needed in de-
veloping countries.
Emission-free baseload electricity will continue to be the back-
bone of our energy and environmental policies, Mr. Chairman, sup-
porting our sustained economic growth and protecting resources for
future generations. The nuclear industry looks forward to working
with you and all the parties engaged in climate change, so that we
can use the best of our technology wisely and well to mitigate
greenhouse gas emissions without undermining the American way
of life.
I thank you, and I would be happy to answer your questions.
Senator KERRY. Thank you very much. Am I pronouncing your
name correctly?
Ms. KOETZ. Koetz, sir.
Senator KERRY. Koetz. I was correct then. Good. Thank you.
[The prepared statement of Ms. Koetz follows:]
43
PREPARED STATEMENT OF MAUREEN KOETZ, DIRECTOR OF ENVIRONMENTAL POLICY
AND PROGRAMS, NUCLEAR ENERGY INSTITUTE
Mr. Chairman, ranking members, and distinguished members of the Committee,
I am Maureen Koetz, director of environmental policy and programs for the Nuclear
Energy Institute (NEI). As with other air quality issues we have faced, the potential
for climate change is challenging our ingenuity and our markets to devise, enhance
and support technologies that avoid or mitigate man-made emissions of greenhouse
gases. Foremost among these is a robust, safe nuclear energy industry, able to pre-
vent these emissions while preserving the affordable electricity system that is the
foundation for Americas commercial success and future economic growth.
On behalf of its more than 270 members, NEI acknowledges and appreciates con-
gressional support for the industry, which has helped bring nuclear energy to the
renaissance we see today. In developing public policy for the nuclear industry, NEI
represents a broad spectrum of interests from every U.S. utility that operates a nu-
clear power plant, nuclear fuel cycle companies, suppliers, engineering and con-
sulting firms, national research laboratories, manufacturers of radiopharma-
ceuticals, universities, labor unions and law firms. The jobs, tax base and economic
value the industry represents comprise a vital segment of our energy infrastructure,
as well as American communities and families whose welfare and well-being derive
from the construction, maintenance and operation of this nations commercial nu-
clear power plants.
I am pleased to testify before this Committee regarding the role of our countrys
103 nuclear electric generating units in protecting the environment from many po-
tential adverse effectsincluding climate changewhile providing 20 percent of our
nations electricity. The unique ability of nuclear-generated electricity to provide
both energy security and protect the environment makes it one of the most impor-
tant risk management tools available to minimize the adverse economic and envi-
ronmental impacts from foreign fuel supply limitations and disruptions, energy price
fluctuations, or environmental dispatch limits that can threaten U.S. growth and
prosperity.
The growing importance of an adequate climate change response is causing energy
supply and emission control issues to again converge as they did in the 1960s and
1970s. Effective climate change action will require a comprehensive energy policy
that uses all forms of energy, particularly electricity generation, to their full poten-
tial and advantage. The national energy policy formulated by President Bush pro-
vides a positive framework to accomplish this goal by supporting the expansion of
emission-free technologiesincluding nuclear electricityto ensure adequate elec-
tricity supplies while mitigating the potential for climate change. Additionally, Sens.
Bingaman and Murkowski this year have sponsored separate comprehensive energy
bills that call for an expanded nuclear energy industry. Sen. Domenici has spon-
sored stand-alone legislation intended not merely to protect nuclear energys vital
role in our nations energy portfolio, but to ensure that role continues to grow to
help meet the nations increasing electricity demandand doing so while avoiding
the emission of harmful greenhouse gases.
Emission Avoidance: A Key Policy Tool
In his recent address on climate change, President Bush made a critical observa-
tion regarding the path forward on climate change, stating: There are only two
ways to stabilize concentration of greenhouse gases. One is to avoid emitting them
in the first place; the other is to try to capture them after theyre created. This
framework builds on our historical success with combining pollution avoidance and
end-of-the-pipe controls in addressing other potentially harmful air emissions from
power generation.
As early as 1969, the Department of the Interior listed increased use of nuclear
energy as one of 11 methods to control sulfur dioxide emissions. Since then, the ad-
vent of nuclear energy has been a major component of achieving domestic air quality
goals. For example, from 1975 to 1990, making electricity in nuclear plants instead
of fossil-fueled alternatives avoided more tons of nitrogen oxide than were elimi-
nated through controls under the Clean Air Act. In 2000 alone, nuclear plants avoid-
ed more than 4 million tons of sulfur dioxide, nearly 2 million tons of nitrogen ox-
ides, and 174 million metric tons of carbon equivalent. In the absence of current nu-
clear production, the difference between current U.S. greenhouse gas emission levels
and our 1990 baseline established in the Framework Convention on Climate Change
would double.
As the president correctly points out, future efforts to control greenhouse gases
will require our continued investment in emission-free technologies of all kinds, but
particularly nuclear plants because of their sizable electric output, minimal environ-
44
mental impact and siting capability near load demand. To fully understand the vital
role of emission avoidance, one need only look at the success of voluntary emission
reduction programs to date. With approximately half the units reporting so far, nu-
clear plants are the single largest contributor to voluntary greenhouse gas emission
reductions (40 percent of the program) under the Department of Energys 1605(b)
program (established under the 1992 Energy Policy Act).
Growth Through Efficiency and Safety
In the face of public opposition to alternative fossil options that would have in-
creased air pollution, construction of the first commercial nuclear reactor began at
Shippingport, Pa., near Pittsburgh, in 1955. Since that first plant, nuclear energy
has evolved into a reliable, affordable and essential baseload electricity technology
with an unparalleled safety record.
In 2000, nuclear plants generated a record 754 billion kilowatt-hours of electricity,
25 billion kilowatt-hours more than the previous year and 178 billion kilowatt-hours
more than in 1990. Last years record performance capped the best decade in the
industrys history. The average production cost of electricity generated by nuclear
power plants during 1999 was 1.83 cents per kilowatt-hour, the lowest of all fuel
sources. And improved production was matched with ever-improving safety.
The dramatic increase in electricity generation by Americas nuclear plants is also
one of the most successful energy efficiency programs of the past decade. Output in-
creases are equivalent to adding 22, 1000-megawatt power plants to our nations
electricity grid, without the environmental disruptions and impacts that would have
occurred if new facilities had been brought on line to meet these needs. Although
the lack of new nuclear construction since the 1980s often is identified as a sign
of industry stagnation, in fact, the more efficient operation of existing nuclear elec-
tric generating facilities has been an environmentally beneficial alternative for mak-
ing additional electricity.
Plant uprates, improved maintenance, reduced outage times and safety improve-
ments will continue to provide higher operating efficiency and additional electricity
output from existing power plants. But these increases are finite, limited to the
maximum capacity of each reactor. To meet future demands of an electricity-hungry
digital economyespecially if carbon mitigation efforts limit some optionssome
electric companies are beginning to examine the market for new nuclear plants. Ad-
vances in renewable generation, distributed sources such as fuel cells, and continued
conservation will all improve our competitive energy/environmental position. But
these advances will not displace the continued need for baseload sources as part of
providing secure energy supplies that meet the 99.9999 percent reliability rating
needed in the future.
In addition, bulk users will continue to need bulk electricity supply that mitigates
environmental impact, a product these alternative sources may not be able to pro-
vide. For example, the New York City subway uses 1.8 billion kilowatt-hours of elec-
tricity annually. Mass transit is necessary to mitigate air quality impacts, including
increased greenhouse gas emissions, from carbon-based mobile sources. Other envi-
ronmental protection systems, such as wastewater treatment and water purification,
also require bulk electricity to serve the large, urban populations where 80 percent
of Americans now livenot to mention to help meet electrical demands of a con-
centrated population. Continued use and expansion of nuclear electricity works in
tandem with other advanced technologies to meet the range of market needs for en-
ergy that can also avoid or mitigate impacts such as global warming.
An Unrivaled Waste Management Record
Nuclear energy facilities, like other electricity sources, have waste streams and
byproducts that must be managed safely. The environmental policies and practices
at nuclear energy plants are unique in having avoided or prevented significant
harmful impacts on the environment since the start of the commercial nuclear in-
dustry more than 40 years ago. Effective waste avoidance, minimization and man-
agement practices have successfully prevented or mitigated adverse impacts on
water, land, habitat, species and air from releases or emissions in the production
of nuclear electricity, some of which have already been discussed in detail above.
Throughout the nuclear electricity production process, the small volumes of waste
byproducts actually created are treated and released, or carefully contained, pack-
aged and safely stored.
The safe handling and storage of used nuclear fuel is one of the most successful
solid waste management programs in the industrial sector. Used fuel rods are stored
in contained, steel-lined pools or in robust stainless steel containers at limited-ac-
cess reactor sites.
45
As a result of improved process efficiencies, the average volume of waste gen-
erated at nuclear energy plants has decreased significantly in the past two decades.
The high-level radioactive material in used fuel rods totals less than 20 metric tons
per nuclear plant each year. The trillions of kilowatt-hours of nuclear electricity
generated over more than 40 years have produced about 38,000 metric tons of used
fuel rods. These rods, if stacked together, would fill a football field to a depth of
a little more than four yards. Although this is an astonishingly small residual vol-
ume of used fuel from the production of all of the nations nuclear electricity over
the past 40 years, and although it is fully accounted for and very safely separated
from the environment, its removal to a central repository has caused considerable
angst. It is helpful to keep this very small disposal issue in perspective. For each
one ton of this used fuel, 345,000 metric tons of greenhouse gas, dispersed to the
atmosphere, were avoided. Surely, seen in this light, the completion of Congress re-
solve for the disposal of used fuel enacted in 1982 is clearly in the nations environ-
mental interest and will encourage expanded use of nuclear energy.
Although U.S. policy originally envisioned recycling reactor fuel to separate out
small volumes of waste and reuse the remaining fuel, prior administrations chose
instead to dispose of the fuel after only one use in a deep geologic repository, leading
to the site characterization project at Yucca Mountain. Research continues to de-
velop improved processes for recycling used fuela policy option that will provide
strategic fuel reserves that can increase the future contribution of nuclear electricity
to sustainable developmentbut it is imperative that the United States keep its
program for a federal repository program on track toward a presidential decision in
2001. The Yucca Mountain program is key to effective climate policy for two rea-
sons. First, cost-effective operation of nuclear plants requires a centralized, perma-
nent site to continue the environmentally preferable practice of isolated storage for
used fuel. Second, nations around the world will use emission-free electricity from
nuclear plants as part of their climate change mitigation strategies. As the world
leader in nuclear technology, the United States must also be the world leader in ef-
fective, long-term management of used fuel.
The Future
U.S. electricity demand grew by 2.2 percent a year on average during the 1990s
and by 2.6 percent in 2000. Even if demand grows by a modest 1.8 percent annually
over the next two decades, the nation will need nearly 400,000 megawatts of new
electric generating capacity, according to the U.S. Energy Information Administra-
tion. That figure takes into account replacement of retired capacity. This capacity
is the equivalent of building about 800 new mid-size (500-megawatt) power plants
in the next 20 years, which amounts to roughly 40 plants per year.
Currently, more than one-third of U.S. electricity production is from emission-free
sources. In order simply to maintain that percentageand the contribution to air
quality and greenhouse gas abatement it representsthe current nuclear fleet must
increase by 50 percent. To meet that challenge, the nuclear industry has established
a goal of 50,000 megawatts of new nuclear power plant construction by the year
2020.
Meeting this goal will require effective energy policies that promote adequate sup-
ply, a balanced fuel portfolio, and the advancement of clean technologies. We believe
those policies should include the following actions:
Preserve U.S. Global Leadership in Nuclear Science and Technology Through Ade-
quate R&D Funding
The Presidents Council of Advisors on Science and Technology (PCAST) has said
that the government is not doing all it can in nuclear energy research and develop-
ment. The reason, said the council, is that the public has been lulled into a sense
of complacency by a combination of low energy prices and little sense of the connec-
tion between energy and the larger economic, environmental and security issues
that people do care very much about.1 In its 1999 report, PCAST noted that its
recommendation for nuclear R&D funding by the year 2003 ($120 million) would
merely return the U.S. level of effort to that of 1995.2
The Nuclear Energy Research Initiative (NERI) and Nuclear Energy Plant Opti-
mization (NEPO) research programs should be funded at levels double the adminis-
trations 2001 budget request. These programs are designed to produce generic im-
provements that reduce capital and operating costs for both current reactors and ad-
1 Federal Energy Research and Development for the Challenges of the 21st Century, Report of
the Energy Research and Development Panel of the Presidents Council of Advisors on Science
and Technology, Page ES31, November 1997.
2 November 1997 PCAST Report, Page ES5.
46
vanced reactor designs available for new nuclear plant construction. Funding also
is important for the Energy Departments University Support Program, which helps
maintain research reactors and enhances educational programs in nuclear science
and technology at our nations colleges and universities, thereby encouraging a
steady stream of new entrants into the nuclear industry workforce.
In comparison to other electricity-generating sources, nuclear energy unequivo-
cally is the most economical federal research and development investment. In 2000,
the federal government spent six cents on nuclear energy R&D for every megawatt-
hour ($.06/MWh) of electricity generated at nuclear power plants. By comparison,
solar photovoltaics received more than 1,300 times that amount per megawatt-hour
($81.79/MWh). Obtaining a fair share of R&D funding is essential for the expanded
use of nuclear energy.
Level the Electricity Competition Playing Field
In recent years, state and federal initiatives have accelerated the transition to a
competitive electricity market. As companies prepare to do business in this new
market, the unbundling of their products and services will require a re-examination
of costs and allocation of value to activities that previously were not valued. Con-
gress can enact several legislative initiatives that remove unnecessary impediments
to nuclear power and pave the way for sensible, market-based business decisions
that will preserve and extend the operation of todays nuclear power plants.
First, Congress should eliminate unnecessary requirements that may prevent ef-
fective ownership transactions in a competitive market. Consolidated ownership of
nuclear plants allows for economies of scale in operations, maintenance, outage
planning and administration. These transactions can further improve safety because
ownership and operating responsibility will be consolidated in the hands of large
companies with the financial and management resources to operate the plant at the
highest possible levels of safety and reliability. Resulting cost savings encourage
continued plant operation by reducing the operating costs of plants when operated
as part of a larger nuclear organization. Policy changes are important to remove po-
tential barriers to permitting otherwise economical plant consolidations, including
revision of Section 468A of the Internal Revenue Code, which addresses the tax
treatment of nuclear decommissioning trust funds.
In addition, public policy incentives to encourage carbon abatement or avoidance
technologies must be equally applied, whether they are production and/or invest-
ment tax credits to address climate change, access to market-based pollution control
mechanisms, or access to favorable financing and other funding mechanisms. The
importance of nuclear energy to clean air and carbon abatement is one of the pre-
viously unvalued services that must be recognized to prevent competitive disadvan-
tage and position nuclear power plants to continue their crucial environmental con-
tribution.
Any plausible strategy to mitigate greenhouse gas emissions will require an ex-
panded use of nuclear energy in the United States and around the world. Equal
treatment in these market and incentive programs will allow new nuclear plants to
effectively compete with alternative forms of generation, extending nuclear energys
unique ability to provide energy security and environmental protection.
Assure Adequate Funding for the Repository Program at Yucca Mountain
Since 1983, consumers of nuclear-generated electricity have paid one-tenth of a
cent per kilowatt-hour into the Nuclear Waste Funda fund solely intended to fi-
nance the federal governments used fuel management program. The fund, which
has collected about $17 billion, has a balance of about $10 billionand its growing
at about a $1 billion a year. Still, obtaining appropriations from the fund for the
Yucca Mountain project between now and 2010the year it is estimated the facility
would be ready for operationcould be significantly challenging because of budg-
etary rules. The fund initially was intended as an off-budget account, but subse-
quent congressional laws introduced appropriations caps and other budgetary re-
strictions. The result has been a perennial failure by Congress to appropriate
enough money from the Nuclear Waste Fund to meet the Energy Departments an-
nual budget request, undercutting the Yucca Mountain project.
DOE has requested $445 million for fiscal year 2002 work on the Yucca Mountain
project. The House of Representatives endorsed the recommendation of its Appro-
priations Committee, approving $443 million. We encourage the members of this
Committee and the Senate to do the same, facilitating the opening of the Yucca
Mountain repository in 2010.
47
Extend Self-Insurance Pooling Under the Price-Anderson Act
The public has $9.5 billion of insurance protection in the event of a nuclear reac-
tor accident. The nuclear reactor operatorsnot the public or the federal govern-
mentpay for this insurance. This utility self-insurance pool was first established
in 1957, when Congress passed the Price-Anderson Act. The act provides an um-
brella of no-fault insurance protection for the public and ensures that money will
be immediately available to pay liability claims that could result from a major nu-
clear accident. Price-Anderson most recently was amended in 1988, and the deadline
for reauthorization is 2002.
In a 1998 report to Congress, the NRC recommended that the act be extended for
an additional 10 years. DOE also has recommended that Congress approve an ex-
tension of the Price-Anderson law. Both agencies recommended reauthorization with
minimal change. The nuclear industry strongly supports the reauthorization of the
Price-Anderson Act for an indefinite period.
Conclusion
One of the most prominent environmental protection advancements in the indus-
trial sector has been the increased reliance on domestically available nuclear energy
to power our fast-growing digital economy while improving air quality. The United
States leads the world in the development and application of nuclear technology.
The economic value of this export market is substantial, bringing high-paying jobs
and revenues to many areas around the country that participate in nuclear power
production.
Congress should not lose sight of this important energy security and clean air re-
source, and policymakers should employ a strategy that maximizes nuclear energys
potential to power our economy and address climate change. Working together for
national security and public sector needs, the nuclear energy industry and the fed-
eral government can ensure that emission-free electricity will continue to help meet
our nations public policy goals regarding energy production and environmental pro-
tection for workers, consumers, businesses, and urban dwellers looking to protect
their quality of life and their environment.
Thank you for giving me this opportunity to share the industrys perspective on
climate change and technological development issues the Committee is focusing on
at this hearing.
710koet1.eps
48
Senator KERRY. Mr. Duffy.
STATEMENT OF DENNIS J. DUFFY, VICE PRESIDENT OF

REGULATORY AFFAIRS, ENERGY MANAGEMENT, INC.
Mr. DUFFY. Thank you. I appreciate this opportunity to address
the Committee regarding the role of wind energy in establishing a
balanced environmental and energy policy.
My name is Dennis Duffy, vice president of regulatory affairs for
Energy Management, Inc., or EMI. EMI is a privately held com-
pany with 25 years of experience in the energy business. As our
name implies, our original business was advising industrial energy
users as to the conservation and optimal use of their energy re-
sources. We subsequently focused on the development and oper-
ation of major electrical generation facilities, and over the past dec-
ade, raised a billion dollars in project capital, and developed,
owned, and operated some of the most efficient gas-fired combined
cycle plants in the United States.
As of the end of last year, however, EMI sold all of its fossil-
fueled units and is now focusing exclusively upon the development
of wind energy facilities. As indicated by this shift in our energy
market segment and the associated commitment of our own capital,
we are confident that wind energy technology has now advanced to
the point where it is proven reliable and can play a much more
meaningful role in our national environmental and energy policy.
As an initial matter, the environmental benefits of wind genera-
tion are striking. As the Committee is no doubt aware, the combus-
tion of fossil fuels for the production of electricity is one of the most
important factors affecting air quality throughout the nation. While
fossil fuels will certainly remain a large portion of our national en-
ergy portfolio, the important point is that, as of today, renewable
technologies have developed to the point where much more sub-
stantial portions of our energy needs can be met without the com-
bustion of fossil fuels.
710koet2.eps
49
By way of example, we are currently developing an approxi-

mately 400-megawatt wind generation facility located off Massa-
chusetts that would each year offset the combustion of either 85
million gallons of oil or 500,000 tons of coal that would be required
to produce an equivalent amount of electricity utilizing traditional
combustion technologies. Further, todays wind projects can be de-
signed and sited in a manner that is environmentally sensitive and
compatible with existing land and marine uses.
An important point here is that wind generation is often a non-
exclusive land use, so, for example, wind units can often be located
on operating farms and ranches without disturbing the current op-
eration, so farmers can go ahead, continue their operation, but do
so with an incremental revenue stream which really has no adverse
effect on their operations.
Wind energy also furthers the important energy policy objective
of diversification of supply and reduce dependence on imported
fuel. Diversification of supply is important to both maintaining
price stability and to get to the continued reliability of electrical
service. As experience over the last year has taught us all, elec-
tricity prices are directly linked to the often volatile and unregu-
lated pricing of fossil fuels. In this regard, the addition of substan-
tial amounts of wind-generated electricity to supply portfolios
would provide a valuable hedge against fuel price spikes and effec-
tively mitigate the volatility of the energy markets.
Further, the current state of regulatory affairs has induced the
overwhelming majority of new plants constructed to utilize a single
fuel, natural gas, a growing dependence, which has caused some
market managers serious reliability concerns.
Additional wind units would also cause consumers in deregulated
power market pools to see substantial reductions in their overall
power cost, a point which is often notmisapprehended. All sellers
in these deregulated pools are paid the same clearing price, which
reflects the marginal, primarily fuel, cost of the last generating
unit dispatched in any given hour. Each pool prioritizes and dis-
patches its generating units in economic merit order for the lowest
to highest marginal cost bids, until sufficient units are dispatched
to meet overall customer demand, and with the last and most ex-
pensive unit dispatched, setting the clearing price for the entire
pool.
The key point is that because wind units have a marginal cost
of close to zero, they will displace higher marginal cost units that
might have otherwise set the clearing price and thereby placed
downward pressure on pool clearing prices in every hour of every
day. Because the resulting reductions in clearing prices are then
applied to the entire volume of electricity traded in the spot market
of the pool, there is a multiplier savings effect so that the cost of
supporting wind industry development results in far greater cost
savings to the consuming public.
The bottom line is that in deregulated power pools where the
clearing prices are driven by marginal costs, you can spend more
to support wind energy and still substantially reduce the overall
power costs to the public.
Obviously the degree to which wind energy can be relied upon to
further the foregoing policies depends on the performance of the
50
underlying technology. In this regard, reference to the worldwide

growth of wind energy confirms that the technology has advanced
to the point where it is not only proven reliable but also a leading
source of new generation in the global market. The American Wind
Energy Association recently summarized as follows: Total world-
wide wind capacity today is approximately 17,000 megawatts. Wind
energy was the worlds fastest growing energy source during most
of the 1990s, expanding at annual rates ranging from 25 to 35 per-
cent. In the year 2000, about 3,500 megawatts of new wind capac-
ity, close to a $4 billion investment, was installed around the
world.
Although the technology has been proven in the field, I think it
is important and I will close briefly to note that the technology is
still a developing technology in this country and is still needing
various market and regulatory supports, most important being the
extension of the production tax credit. Now, I knowthere seems
to be bipartisan support for the extension. It is critical from our
perspective that that extension be for a period of not less than 5
years.
What is driving that is that there is such a demand for wind tur-
bines throughout the world, the manufacturers are hard-pressed to
assure delivery within the 3-year window, so it is a good tech-
nology. It is proven in the field. It is reliable, but we still need the
economic incentives, and most importantly the production tax cred-
it.
Thank you. I am available for questions.
Senator KERRY. Mr. Duffy, thank you very, very much.
[The prepared statement of Mr. Duffy follows:]
PREPARED STATEMENT OF DENNIS J. DUFFY, VICE PRESIDENT OF REGULATORY

AFFAIRS, ENERGY MANAGEMENT, INC.
1. Introduction
I appreciate this opportunity to address the Senate Commerce Committee regard-
ing the role of wind energy in establishing balanced environmental and energy pol-
icy. I am Dennis J. Duffy, Vice President of Regulatory Affairs of Energy Manage-
ment, Inc. (EMI). EMI is a privately-held company with twenty-five years of expe-
rience in the energy business. As our name implies, our original business was advis-
ing industrial energy users as to the conservation and optimal use of energy re-
sources. We subsequently focused on the development and operation of major elec-
trical generation facilities and, over the past decade, raised $1 billion in project cap-
ital and developed some of the most efficient gas-fired plants operating in the
United States. As of December of 2000, however, EMI has sold all of its fossil-fueled
units and is now focusing exclusively upon wind energy development. As indicated
by this shift in energy market segment (and the associated commitment of our cap-
ital), we are confident that wind energy technology has now advanced to the point
where it is proven and reliable and can play a much more meaningful role in our
national environmental and energy policy.
2. Benefits of Wind Energy
A. Environmental Benefits
As an initial matter, the environmental benefits of wind generation are striking.
As the Committee is no doubt aware, the combustion of fossil fuels for the produc-
tion of electricity is one of the most important factors affecting air quality through-
out the nation. While fossil fuels will certainly remain an integral part of our na-
tional energy portfolio, the important point is that, as of today, renewable tech-
nologies have developed to the point where substantial portions of our energy needs
can be met without the combustion of fossil fuels or the environmental issues associ-
ated with nuclear power. By way of example, we are currently developing an ap-
proximately 400 megawatt wind facility to be located five miles off the coast of Mas-
51
sachusetts that would each year offset the combustion of (i) 85,000,000 gallons of
oil or (ii) 500,000 tons of coal that would be required to produce an equivalent
amount of electricity utilizing traditional technologies. Further, todays wind
projects can be designed and sited in a manner that is environmentally sensitive
and compatible with existing land and marine uses.
B. Diversification Benefits
Wind energy also furthers the important energy policy objectives of diversification
of supply and reduced dependence upon imported fuel. Diversification of supply is
important to both maintaining price stability and to the continued reliability of elec-
trical service. As experiences over the last year have taught us, electricity prices are
directly linked to the often volatile and unregulated pricing of fossil fuels. In this
regard, the addition of substantial amounts of wind-generated electricity to supply
portfolios would provide a valuable hedge against fuel price spikes and effectively
mitigate the volatility of the energy markets. Further, the current state of regu-
latory affairs has induced the overwhelming majority of new plant construction to
utilize a single fuelnatural gas, a growing dependence which has caused market
managers serious concern.1 The inclusion of significant portions of wind generation
in future supply portfolios mitigates these reliability concerns, while at the same
time mitigating electric price volatility.
C. Overall Consumer Cost Savings
Additional wind units would also cause consumers in deregulated power pools to
see substantial reductions in their overall power costs. All sellers into these pools
are paid the same clearing price reflecting the marginal (i.e., primarily fuel) cost
of the last generating unit dispatched in any given hour. Each pool prioritizes and
dispatches its generating units in economic merit order, from the lowest to highest
marginal cost bids, until sufficient units are dispatched to meet customer demand,
with the last/most expensive unit dispatched setting the clearing price for the entire
pool. The key point is that because wind units have a marginal cost of zero, they
will displace higher marginal cost units from the economic dispatch and thereby
place downward pressure on pool clearing prices in every hour of every day. Because
the resulting reductions in clearing prices are then applied to the entire volume of
electricity trading in the pool, there is a multiplier savings effect, so that costs of
supporting wind industry development result in far greater cost savings to the con-
suming public. The bottom line is that, in deregulated power pools, you can spend
more for wind energy and still substantially reduce overall power costs to the public.
3. The Proven Performance of Todays Wind Technology
Obviously, the degree to which wind energy may be relied upon to further the
foregoing policy objectives depends upon the performance of the underlying tech-
nology. In this regard, reference to the world-wide growth of wind energy confirms
that the technology has advanced to the point where it is not only proven and reli-
able, but also a leading source of new generation in the global market. The Amer-
ican Wind Energy Association (AWEA) recently summarized the global acceptance
and implementation of wind power in the following matter:
Total worldwide wind capacity today is approximately 17,000 mw, enough to
generate about 34 billion kilowatt-hours of electricity each year. This is about
the same amount of electricity as 5 million average California households (con-
taining 12.5 million people) use. Wind energy was the worlds fastest-growing
energy source during most of the 1990s, expanding at annual rates ranging
from 25% to 35%. In 2000, about 3,500 mw of new wind capacity (close to a $4
billion investment) was installed around the world, but only 53 mw of that
total, or little more than 1% was installed in the U.S.
This world-wide growth in wind power is shown in graphic form on Attachments 1
and 2 hereto. Also notable is the marked trend in the European markets towards
offshore wind facilities, of which more than 3,000 mw are now under development,
as indicated on Attachments 3 and 4, with a representative project shown in Attach-
ment 5.
This international growth in wind generation provides a practical validation of to-
days wind turbine technology. Indeed, Denmark now obtains approximately 20% of
its power from wind resources and northern portions of Germany have achieved
even higher concentrations. Importantly, the European experience has also dem-
1 For example, the Independent System Operator of New England (ISONE) released a re-
port earlier this year noting its serious concern over this potential over-reliance upon a single
source of fuel whose deliverability has not been fully assured.
52
onstrated that utility systems can operate in a safe and reliable manner with con-
centrations of wind resources far in excess than those now existing in the United
States. With respect to the potential for wind energy in the United States, AWEA
has stated as follows:
The leading [US] states in terms of installed wind capacity are California (1,646
mw), Minnesota (272 mw), Iowa (242 mw) and Texas (188 mw). US wind poten-
tial is enormousmany times the amount installed. Californias potential, for
example, is conservatively estimated at 5,000 mw of wind capacity. Other west-
ern states have much larger potentiale.g., Wyoming has more than ten times
Californias. The U.S. is, quite literally, a Saudi Arabia of wind, with vast re-
sources throughout the Plain States.
* * *
AWEA expects as much as 2,000 mw of new wind capacity to be installed in
the U.S. this year.
4. Policy Issues for Wind Energy
Notwithstanding the proven performance of wind technology, further inroads into
the U.S. market still require a degree of market and regulatory support. Most im-
portant is the extension of the Production Tax Credit (PTC), which currently pro-
vides an income tax credit for the production of electricity from qualified wind en-
ergy facilities. While I am happy to note that there is bipartisan support for an ex-
tension of the PTC, some proposals would provide only a three year extension,
whereas others propose a five year extension. It is extremely important to the wind
industry that the PTC extension be for a period of not less than five years. The glob-
al demand for new wind turbines has created substantial doubt as to the ability of
manufacturers to produce, deliver and install new units within a three-year window.
Thus, a PTC extension of at least five years is necessary in order to accommodate
limited production capabilities.
Another policy initiative important to the growth of the wind industry in the U.S.
market are Renewables Portfolios Standards (RPSs), a minimum content require-
ment specifying that a certain percentage of electric supply portfolios must be ob-
tained from renewable energy resources (wind, solar, and others), either through di-
rect purchase of electricity or the indirect purchase of green credits or certificates.
Several states have included such RPS requirements as part of their electric utility
restructuring legislation. Texas, for example, has set a RPS requirement of 2,000
mw of new renewable energy generation by the year 2009, and one-half of such
amount (1,000 mw) will be met by wind generation that will be in service by the
end of this year. Massachusetts similarly included an RPS requirement in its elec-
tric restructuring legislation, which requires that 10% of all retail supply portfolios
be supplied from renewable resources by 2010. We believe that such requirements
are a sound policy tool to ensure that the public benefits of renewable power are
not frustrated by the established order in the electric industry, and would strongly
support initiatives for a RPS requirement as a matter of Federal policy.
Finally, we believe that it is important to encourage utilities to consider long-term
purchases of renewable energy as part of their overall portfolio planning. While
some restructuring plans encouraged utilities to rely primarily or exclusively upon
short-term purchases, experience has shown the undue volatility that can result.
Further, long-term pricing more fully recognizes the competitive value of wind en-
ergy and its ability to provide an economic hedge against market volatility through
pricing that can remain fixed irrespective of fuel prices.
5. Conclusion
In closing, I wish to reinforce our conclusion, based upon our experience in the
energy business and of the current state of technology, that wind energy is a proven
and reliable option that can play a much greater role in the nations environmental
and energy policies. While the environmental benefits of clean and renewable gen-
eration are obvious, wind energy would have the additional benefits of (i) reducing
overall customer costs, (ii) mitigating fuel-driven price spikes and (iii) improving
system reliability through diversification of supply and reduced reliance upon im-
ported fuels. Although wind technology has been validated in the global arena, it
remains a developing industry in the U.S. which requires both market and regu-
latory support in order to make the inroads into the established market that would
further the national interests of environmental and energy policy.
Thank you.
53
Attachment 1
World Growth of Wind Power

Wind Power 1 All electricity Generation
Annual Capacity 2 Annual
Generation Year Growth % Growth %
Capacity Energy of TWh Capacity Energy of TWh
GW TWh GW TWh
1996 6.07 12.23 (3,159) (13,613) (IEA 00)

1997 7.64 15.39 25.8% 3,221 13,949 2.8%
1998 10.15 21.25 38.1% 3,298 14,340 2.8%
1999 13.93 28.18 32.6% 3,377 14,741 2.8%
2000 18.43 37.30 32.0% 3,458 15,153 2.8%
2010 145.0 355.68 4,386 19,989
Average Annual
growth 1996
through 2000 27.2% 2.8%
Source: BTM Consult ApSMarch 2001.
1 World Market Update, BTMC (Chapter 2 & 4); 2) IEA World Energy Outlook 2000General Projection.
Attachment 2
World Share of Wind Power

Electricity form all gen. Wind Powers share of the
Generation Electricity gen. by Wind Technologies (inc. Wind) worlds Electricity
Technology Year: Power (BTMC) TWh IEA TWh Generation
1996 12.23 13,613 0.08%

1997 15.39 13,949 0.11%
1998 21.25 14,340 0.15%
1999 28.18 14,741 0.19%
2000 37.30 15,153 0.25%
2010 (est.) 355.68 19,989 1.78%
Source: BTM Consult ApSMarch 2001: World Figures: IEA World Energy Outlook 2000.
VerDate 0ct 09 2002
07:58 Jul 12, 2004
Attachment 3
World Share of Wind Power
Jkt 081727
Identified offshore Wind Power Projects in Europe by country MWcapacity planned to be installed
Country of location: Identification Year:
of projects/sites: Belgium Denmark Germany Ireland Netherlands Sweden UK
Stengrunden (SE) 2001 10
PO 00000
Horns Rev (DK) 2002 160
Hakefjorden (SE) 2002 44
Klasfjorden (SE) 2002 42
Frm 00058
Rostock (GE) 2002 60
Rodsand (DK) 2003 150
Laeso (DK) 2003 150
Fmt 6633
Lillgrund (SE) 2003 72
Gros. Vogels. GEO (GE) 2003 80
54
Lubeck (SKY) (GE) 2004 100
Sfmt 6621
NOVEM (NL) N. Shore 2003 100
Electrabel (BE) 2004 100
Dublin Bay (IR) 20034 240
Scroby Sands (UK) 20023 76
E-Connection (NL) 2003 240
PNE, Borkum (GE) 2004 60
Two Projects in UK (UK) 20045 260
Eirtricity (Arklow) (IR) 2005 500
Omo Stalgrund (DK) 2005 150
Helgoland I (GE) 500
S:\WPSHR\GPO\DOCS\81727.TXT
Total by Country (MW) 100 610 800 740 340 168 336
Source: BTM Consult ApSMarch 2001.
JACK
PsN: JACKF
55
Attachment 4
Status of Planned Offshore Projects
Attachment 5
Senator KERRY. Mr. Kammen.

710duff2.eps
710duff1.eps
56
STATEMENT OF DR. DANIEL M. KAMMEN, PROFESSOR OF
ENERGY AND SOCIETY, ENERGY AND RESOURCES GROUP,
AND PROFESSOR OF NUCLEAR ENGINEERING, UNIVERSITY
OF CALIFORNIA
Dr. KAMMEN. Thanks very much for having us speak today. I am
Daniel Kammen, and I am a professor of energy and society in the
University of California at Berkeley. I am also professor of nuclear
engineering and director of the Renewable and Appropriate Energy
Laboratory.
And what you have heard in the previous testimonies are a num-
ber of technologies that are showing market entrance and great po-
tential, and I want to just summarize a couple of key things, and
that we are right now in a take-off phase, where a variety of re-
newables are playing a significant role, but they need a market-
place to be balanced out. And so my testimony details but let me
summarize three simple and very clear truths about this.
One is that the U.S. could meet and exceed the Kyoto or other
obligations or other targets for climate protection and do that at an
economic benefit, not a cost, and I will come back to that at the
very end. That is a critical feature that has now been recognized
in a variety of recent studies.
The next feature is that research and development for renewable
energy alternatives has been on a 25-year roller coaster, and we
see funding levels that go up, programs cut and then added to and
cut and added to in ways that have been incredibly inefficient. A
critical thing is to not pick individual winners, not say, We are
going to bank all of our money on a given technology, but to sup-
port portfolios that allow a variety of low-carbon and no-carbon en-
ergy systems to become part of the mix.
And the third feature is that this technology push needs to be
coupled with clear market pull, and so building markets for cleaner
technologies is the third and critical piece of what we are looking
at, and we are seeing some significant opportunities now, and one
of the most disappointing things we have seen in the current roller
coaster over funding and over the current national energy policy
plan has been that a lot of the lessons about how to use energy effi-
ciency and renewables most effectively are not being utilized in the
market.
I am going to say a few words about each of these. Our R&D
path has been, as I said, a bizarre roller coaster, with these in-
creases and decreases. The uncertainty in energy markets has also
meant that energy companies and industry in general has invested
very small amounts of their returns back into R&D. The energy
sector in general in the U.S. puts something like of a quarter of a
percent of their profits back into R&D. Pharmaceuticals and other
areas that I would argue are a little more healthy are investing
more like 10 or 15 percent of their revenues back into R&D, so we
have got a sector which because of policy, ambiguity, and unclear
directions has not performed the way that it might have.
Despite that, we have seen a variety of advances, and if we pick
those winners and work for those, both for stationary power plants
and for vehicles, as Senator Snowe had mentioned, we have a vari-
ety of things that could dramatically improve what we see coming
on.
57
The other last feature of the R&D story is that it has proved to
be a dramatically good investment. Investments made in energy ef-
ficiency, in wind turbines, in photovoltaics have all been programs
that when you cost them out, have had dramatic economic benefits,
not in costs, and one of the big claims about the climate debate has
been that this is an area where if we do something to reduce green-
house gas emission, it will come at a cost. And, in fact, a variety
of studies are now indicating that we can do all these things and
make money at the same time.
The next feature is to look at markets. Currently in the markets,
we dramatically subsidize the fossil fuel industry. We subsidize
those technologies that are already mature to an overwhelming de-
gree. Oil and gas and coal receive the lions share of Federal sub-
sidies for energy programs, which doesnt make economic sense, let
alone environmental sense, because right now we have emerging
opportunities in fuel cells, in wind, in photovoltaics, in a variety of
things, in biomass. Those are the areas where we can much more
effectively spend Federal dollars and marry Federal programs with
state programs.
Another feature of that is that the market entry for new clean
air technologies has been particularly difficult. The California en-
ergy debacle has been one that has highlighted the degree to which
new clean options are prevented from entering the market, because
the economic rules have been ones that largely benefit existing
technologies and dont pave the way for these new clean options to
come on line.
One critical piece of this providing markets for clean energy
would be to enact a renewables portfolio standard, which is the
way to use markets correctly. It is a way to set targets for how
much clean energy we want to see in the market and then to let
market forces pick and choose between winners, and that is a way
to utilize the competitive feature of industry within markets but
not to have a market that is biased against new entrants, and it
doesnt make any sense that we havent pushed harder on that.
In the last 106th Congress, there was a bill on the table, Senate
Bill 1369, that looked at renewables portfolio standard. That is a
critical piece of what we might do down the line.
The other piece of this is that we have seen from a variety of sys-
tems, from energy-efficient lighting to getting some wind capacity
on line, to looking at R&D development in the photovoltaic sector,
that the industry can respond dramatically to these challenges if
given a reasonable timetable to put this into place, and every year
and every month that we delay right now in acting on climate
change, we make it more difficult and costly for industry to act.
It would make a great deal of sense to set clear standards for re-
newables portfolio in our energy mix and also for improving the ef-
ficiency of lighting and to reduce some of the inefficient tech-
nologies we have in the market right now.
The estimates that have come out of a variety of studies in our
laboratory from the national labs, from the International Project
for Sustainable Energy Paths have all concluded that if we tackled
the Kyoto targets, we could do that at a cost of around 30 billion
a year, but at reduced energy expenditures of more than 45 billion
a year, economic benefits from those reduced energy expenditures
58
of more than 40 billion, and reduced environmental damage from

around 5 billion, so we could be making dramatic amounts of
money if we put policies into effect that supported a broad range
of renewables and got them much more firmly entrenched in the
market, and in fact, doing that at this economic benefit.
The U.S. has also fallen behind in a variety of areas. Our wind
production and our photovoltaic production are now slipping behind
European and Asian nations. That makes no sense, because this is
an area of tremendous economic growth potential.
Let me just say thank you for the chance to appear today, and
I would be happy to discuss any of those policies at more length
later on.
[The prepared statement of Dr. Kammen follows:]
PREPARED STATEMENT OF DR. DANIEL M. KAMMEN, PROFESSOR OF ENERGY AND SO-

CIETY, ENERGY AND RESOURCES GROUP, AND PROFESSOR OF NUCLEAR ENGINEER-
ING, UNIVERSITY OF CALIFORNIA
Introduction: the Emerging Critical Role of Renewable Energy and Energy

Efficiency
Mr. Chairman and members of the Committee, thank you for this opportunity to
appear before you today to provide testimony on how renewable energy and energy
efficiency technologies can address climate change. My name is Daniel Kammen,
and I am Professor of Energy and Society in the Energy and Resources Group and
in the Department of Nuclear Engineering, as well as Director of the Renewable and
Appropriate Energy Laboratory (RAEL) at the University of California, Berkeley.1
I am pleased to be able to present information on how to utilize the many important
advances in renewable energy and energy efficiency technology, economics, and
management for the formulation of a strong national climate change mitigation pol-
icy. This critical initiative is long overdue, and is particularly relevant today. The
recent release of the IPCC Third Assessment Report 2 as well as the analysis by the
National Academy of Sciences on climate change science 3 both conclude that climate
change is real and needs to be addressed now. The clean energy technology options
and policies I will discuss are needed to address the challenge of global environ-
mental sustainability. Despite dramatic technical and economic advances, we have
seen far too little R&D, and too few incentives and sustained programs to build
markets for renewable energy technologies and energy efficiency programs. We
stand today at a critical juncture where clean, low-carbon, energy choices make both
economic and environmental sense, and where policy action can place us on a path
to a clean energy future.
There is a growing understanding that an effective climate mitigation policy is
also a responsible energy policy. I am concerned that the current crisis mentality
pervading the discussions of energy issues in the country has fostered an ill-founded
rush for quick fix solutions that, while politically expedient, will ultimately do the
country more harm than good from both a climate change and an energy policy per-
spective. Californias energy crisis has focused attention and raised fundamental
questions about regional and national energy strategies. Rising demand suggests
the need for new energy supplies. However, there is a wide range of options for
achieving supply and demand balance, and some of these options have not been
given adequate attention. It is clear that an energy policy weighted towards increas-
ing the supply of traditional forms of energy will do little to decrease our green-
house gas (GHG) emissions and will create a host of other environmental, health
and national security problems.
In the last decade the case for renewable energy has become compelling economi-
cally, socially, and environmentally. For many years renewables were seen as envi-
ronmentally and socially attractive options that at best occupied niche markets due
to barriers of cost and available infrastructure. That situation has dramatically
changed. Renewable energy resources and technologiesnotably solar, wind, small-
scale hydro, and biomass based energy, as well as advanced energy conversion de-
vices such as fuel cellshave undergone a true revolution in technological innova-
tion, cost improvements, and in our understanding and analysis of appropriate ap-
plications.4 There are now a number of energy sources, conversion technologies, and
applications, where renewable energy options are either equal, or better, in price
and services provided than are prevailing fossil fuel technologies. For example, in
59
a number of settings in industrialized nations, wind energy is now the least cost op-
tion across all energy technologies with the added benefit of being quick to install
and bring on-line, as well as being modular. In fact, some farmers in the Midwest
have found that they can generate more income per hectare from the electricity gen-
erated by a wind turbine on their land than from their crop or ranching proceeds.
Furthermore, photovoltaic panels and solar hot water heaters placed on buildings
across America can: dramatically shave peak-power demands; produce a healthier
living environment; and increase our energy supply while managing our energy de-
mand.
The potential for renewable energy technologies and energy efficiency to have a
significant role in protecting our climate as well as our energy future is an example
of the type of energy options that demand far greater examination and commitment
to implementation than we have seen to date. And so, I am particularly pleased Mr.
Chairman that you are holding this hearing to discuss how we can effectively and
efficiently bring these technologies to market.
Energy Policy Recommendations
Increase Federal R&D Funding for Renewable Energy and Energy Effi-
ciency Technologies
Federal investment in renewable energy and energy efficient technologies has
been sparse and erratic, with each year producing an appropriations battle that is
often lost. A combination of a federal program for steadily increasing funding and
active political leadership would transform the clean energy sector from a good idea
to a pillar of the new economy.
Provide Tax Incentives for Companies that Develop and Use Renewable
Energy and Energy Efficiency Technologies
Support for the production and further development of renewable fuels, all found
domestically, would have a greater long-term effect on the energy system than any
expansion of fossil-fuel capacity, with major health and environmental benefits as
an added bonus. We should extend the existing production tax credits (PTC) for elec-
tricity generated from windpower and closed loop biomass for five years. Also, this
production credit should be expanded to include electricity produced by open loop
biomass (i.e., agricultural and forestry residues but excluding municipal solid
waste), solar energy, geothermal energy, and landfill gas. The same credit should
be provided to closed loop biomass co-fired with coal, and a smaller credit (one cent
per kWh) should be provided for electricity from open-loop biomass co-fired with
coal. These provisions (in part or full) are included in the Murkowski-Lott (S. 389)
bill, Bingaman-Daschle bill (S. 596), Grassley bill (S. 530), Reid bill (S. 249), Dorgan
bill (S. 94), Collins bill (S. 188), Filner bill (HR 269), Foley bill (HR 876), Herger-
Matsui bill (HR 1657), and Dunn bill (HR 1677). I also support a minimum of a
15 percent investment tax credit for residential solar electric and water heating sys-
tems. This proposal was introduced by Senator Allard (S. 465) and Representative
Hayworth (HR 2076). It also is included in the Murkowski-Lott (S. 389) bill. In addi-
tion, I support a 30 percent investment tax credit being proposed for small (75 kW
and below) windpower systems as in the Bingaman-Daschle (S. 596) bill.
Improved Federal Standards for Vehicle Fuel Economy and Increased In-
centives for High Fuel Economy Vehicles
We need to first remove the separate fuel economy standards for cars and light
trucks (i.e., close the light truck loophole as proposed in S. 804 by Senators Fein-
stein and Snowe and H.R. 1815 by Rep. Olver). I then believe that a 40 mpg com-
bined car and light truck fuel economy standard could be accomplished in the 2008
to 2012 timeframe with negligible net cost. I support the tax credits of up to $5,000
for hybrid electric vehicles, up to $6,000 for battery electric vehicles, and $8,000 for
fuel cell vehicles, and an incentive scheme for energy-use performance that rewards
both fuel savings and lower emissions, as proposed in the CLEAR Act, S. 760, intro-
duced by Senators Hatch, Rockefeller, and Jeffords, and its companion bill (H.R.
1864) introduced by Rep. Camp.
A Federal Renewable Portfolio Standard (RPS) to Help Build Renewable
Energy Markets
I support a 20 percent RPS by 2020. A number of studies indicate that this would
result in renewable energy development in every region of the country with most
coming from wind, biomass, and geothermal sources. A transparent and properly
constructed federal standard is needed to set a clear target for industry research,
development, and market growth. I recommend a renewable energy component of
2 percent in 2002, growing to 10 percent in 2010 and 20 percent by 2020 that would
include wind, biomass, geothermal, solar, and landfill gas. This standard is similar
60
to the one proposed by Senators Jeffords and Lieberman in the 106th Congress (S.
1369).
Federal Standards and Credits to Support Distributed Small-Scale En-
ergy Generation and Cogeneration (CHP)
Small scale distributed electricity generation has several advantages over tradi-
tional central-station utility service, including reducing line losses, deferring the
need for new transmission capacity and substation upgrades, providing voltage sup-
port, and reducing the demand for spinning reserve capacity. In addition, locating
generating equipment close to the end use allows waste heat to be utilized to meet
heating and hot water demands, significantly boosting overall system efficiency. I
support at least a 10 percent investment tax credit and seven-year depreciation pe-
riod for renewable energy systems or combined heat and power systems with an
overall efficiency of at least 6070 percent depending on system size. Similar pro-
posals are included in the Murkowski-Lott energy bill (S. 389), the Bingaman-
Daschle energy bill (S. 596), as well as bills targeted to CHP promotion introduced
by Rep. Wilson (H.R. 1045) and Rep. Quinn (H.R. 1945).
Enact New and Strengthen Current Efficiency Standards for Buildings,
Equipment, and Appliances
Significant advances in heating and cooling systems, motor and appliance effi-
ciency have been made in recent years, but more improvements are technologically
possible and economically feasible. A clear federal statement of desired improve-
ments in system efficiency is needed to remove uncertainty and reduce the economic
costs of implementing these changes. Under such a federal mandate, efficiency
standards for equipment and appliances could be steadily increased, helping to ex-
pand the market share of existing high efficiency systems.
Institute a National Public Benefits Fund
I recommend a public benefits fund which could be financed through a $0.002/
kWh charge on all electricity sales. Such a fund could match state funds to assist
in continuing or expanding energy efficiency, low-income services, the deployment
of renewables, research and development, as well as public purpose programs the
costs of which have traditionally been incorporated into electricity rates by regu-
lated utilities.
Renewable Energy
Conventional energy sources based on oil, coal, and natural gas have proven to
be highly effective drivers of economic progress, but at the same time highly dam-
aging to the environment and to human health. These traditional fossil fuel-based
energy sources are facing increasing pressure on a host of environmental fronts,
with perhaps the most serious being the looming threat of climate change and the
need to set GHG emission targets. It is now clear that any effort to maintain atmos-
pheric CO2 concentrations below even doubled pre-industrial levels 5 cannot be ac-
complished in an oil and coal-dominated global economy, barring radical and prob-
lematic carbon sequestration efforts.
The potential of renewable energy sources is enormous as they can in principle
meet many times the worlds energy demand. Renewable energy sources such as bio-
mass, wind, solar, hydropower, and geothermal can provide sustainable energy serv-
ices while meeting the challenges of energy security, diversity, and regional needs
as well as global environmental quality. A transition to a renewable-intensive en-
ergy economy is now possible given the consistent progress in cost and performance
of renewable energy technologies, new methods for managing distributed energy
generation, and a transformation of the transportation system. Costs of solar and
wind power systems have dropped substantially in the past 30 years, and continue
to decline, while the price of oil and gas continue to fluctuate. In fact, fossil fuel
and renewable energy prices are heading in opposite directions when social and en-
vironmental costs are included. Furthermore, the economic and policy mechanisms
needed to support the widespread dissemination of renewable energy systems have
also rapidly evolved. Financial markets are awakening to the future growth poten-
tial of renewable and other new energy technologies, and this is a harbinger of fully
competitive renewable energy systems.
In addition, renewable energy systems are ideal components of a decentralized
power system that can result in lower capital and environmental costs and improved
opportunities for highly efficient cogeneration (combined heat and power) systems.
As an alternative to customary centralized power plants, renewable systems based
on photovoltaic (PV) arrays, windmills, biomass or small hydropower, can be mass-
produced energy appliances capable of being manufactured at low cost and tailored
to meet specific energy loads and service conditions. These systems can have dra-
matically reduced as well as widely dispersed environmental impacts, rather than
61
larger, more centralized impacts that in some cases are serious contributors to am-
bient air pollution and acid rain. This evolution of our ability to meet energy needs
with clean sources is only in its infancy, and policies that reward R&D, power gen-
eration from clean sources, and a leveling of the playing-field with existing power
providers are all critical components of a sound energy strategy.
Recent Progress in Renewable Energy System Cost and Performance
There has been significant progress in cost reductions made by wind and PV sys-
tems, while biomass, geothermal, and solar thermal technologies are also experi-
encing significant cost reductions. In general, renewable energy systems are charac-
terized by low or no fuel costs, although operation and maintenance (O&M) costs
can be considerable. It is important to note, however, that O&M costs for all new
technologies are generally high, and can fall rapidly with increasing familiarity and
operational experience. Renewable energy systems such as photovoltaics contain far
fewer mechanically active parts than comparable fossil fuel combustion systems,
and therefore are likely in the long-term to be less costly to maintain. Figure 1 pre-
sents U.S. DOE projections for the levelized costs of electricity production from
these same renewable energy technologies, from 1997 to 2030.6
Given these potential cost reductions, recent analyses have shown that additional
generating capacity from wind and solar energy can be added at low incremental
costs relative to additions of fossil fuel-based generation. The economic case for re-
newables looks even better when environmental costs are considered along with cap-
ital and operating costs. As shown in Figure 2, geothermal and wind can be competi-
tive with modern combined-cycle power plants, and geothermal, wind, and biomass
all have lower total costs than advanced coal-fired plants, once approximate environ-
mental costs are included.
The remarkable difference between the setting for renewable energy today, rel-
ative to the past 30 years, is that renewable and other clean energy technologies
are now becoming economically competitive, and the push to develop them is no
longer being driven solely by environmental concerns. With regard to prospects for
investing in companies developing clean energy resources, Merrill Lynchs Robin
Batchelor recently stated:
This is not an ethical investment opportunity, its a straightforward business
opportunity.
Mr. Batchelor also noted that the traditional energy sector has lacked appeal to
investors in recent years because of heavy regulation, low growth, and a tendency
to be cyclical. He has identified 300 companies worldwide whose aim is to develop
wind, solar, and wave power technologies and to advance capabilities in energy stor-
age, conservation, and on-site power generation. Over the past decade the U.S. has
lost its leadership position in the development and production of many clean energy
systemsnotably wind and solar energydue to lack of support for innovative new
companies and the signals that U.S. energy markets are biased against new en-
trants. With an expanding global energy market, this is precisely the wrong time
not to support the clean energy industry, which could become a world-leading indus-
try akin to that of U.S. semi-conductors and computer systems.
Despite their recent success, renewable energy sources have historically had a dif-
ficult time breaking into markets that have been dominated by traditional, large-
scale, fossil fuel-based systems. This is partly because renewable and other new en-
ergy technologies are only now being mass produced, and have previously had high
capital costs relative to more conventional systems, but also because coal, oil, and
gas-powered systems have benefited from a range of subsidies over the years. These
include military expenditures to protect oil exploration and production interests
overseas, the costs of railway construction that have enabled economical delivery of
coal to power plants, and a wide range of subsidies such as tax breaks.
One argument used to limit the attention paid to renewable energy systems has
been the intermittent nature of some sources, such as wind and solar. A solution
to this problem is to develop diversified systems that maximize the contribution of
renewable energy sources but that also uses clean natural gas and/or biomass-based
power generation to provide base-load power. In fact, this greatest disappointment
in the response to the California energy crisis and in the Administrations recent
National Energy Policy Plan has been the focus on expanding the gas supply with-
out any attention to the economic and security benefits of building a diverse energy
system. The Administrations plan would add one to two new power plants, many
gas-fired, a week for the next several years, making us far more dependent on gas
than we were on oil even at the height of the OPEC crisis in the 1970s.
In essence, renewable energy technologies face a similar situation confronting any
new technology that attempts to dislodge an entrenched technology. For many
62
years, we have been locked-in to a suite of fossil fuel and nuclear-based tech-
nologies, and many of our secondary systems and networks have been designed and
constructed to accommodate only these sources. Particularly in the absence of tar-
geted policy interventions (discussed below), we will likely remain locked-in to exist-
ing technologies, even if the benefits of technology switching overwhelm the costs.
Level the Playing Field for Renewables: Public and Private Sector Investments and
Market Transformations
As shown in Figure 2, renewable energy technologies are characterized by low en-
vironmental costs. In an ideal world, this would aid them in competing with conven-
tional technologies, but of course many of these environmental costs are
externalities that are not reflected in market prices. Only in certain areas and for
certain pollutants do these environmental costs enter the picture, and clearly fur-
ther internalizing these costs would benefit the spread of renewables. The inter-
national effort to limit the growth of greenhouse emissions through the Kyoto Pro-
tocol may lead to some form of carbon-based tax, and this could prove to be an enor-
mous boon to renewable energy industries. However, any proposed carbon-based
taxation scheme continues to face stiff political opposition in the U.S. Perhaps more
likely, concern about particulate matter emission and ozone formation from fossil-
fuel power plants will lead to expensive mitigation efforts, and this would help to
tip the balance toward cleaner renewable systems.
There are two principal rationales for government support of research and devel-
opment (R&D) to develop renewables and other clean energy technologies. First,
conventional energy prices generally do not reflect the social cost of pollution. This
provides the rationale, based on a well-accepted economic argument, to subsidize
R&D for alternatives to polluting fossil fuels. Second, private firms are generally un-
able to appropriate all the benefits of their R&D investments. Consequently, the so-
cial rate of return for R&D exceeds available private returns, and firms therefore
do not invest enough in R&D to maximize social welfare. Thus, innovation spill-
over among clean energy firms is a form of positive externality that justifies public
R&D investment. These provide compelling arguments for public funding of Market
Transformation Programs (MTPs) that subsidize demand for some clean energy
technologies in order to help commercialize them.
A principal motivation for considering MTPs is inherent in the production process
itself. When a new technology is first introduced it is invariably more expensive
than established substitutes. There is, however, a clear tendency for the unit cost
of manufactured goods to fall as a function of cumulative production experience.
Cost reductions are typically very rapid at first, but taper off as the industry ma-
tures. This relationship is called an experience curve when it accounts for all pro-
duction costs, and it can be described by a progress ratio where unit costs fall by
a certain percent with every doubling of cumulative production. Gas turbines, photo-
voltaic cells and wind turbines have both exhibited the expected price-production re-
lationship, with costs falling roughly 20 percent for each doubling of the number of
units produced (Figure 3).
If firms retain the benefits of their own production experience they have an incen-
tive to consider experience effects when deciding how much to produce. Con-
sequently, they will forward-price, producing at a loss initially to bring down their
costs and thereby maximize profit over the entire production period.
In practice, however, the benefits of production experience often spill over to com-
petitor firms, causing private firms to under-invest in bringing new products down
the experience curve. Among other channels, experience spillovers could result from
hiring competitors employees, reverse engineering rivals products, informal con-
tacts among employees of rival firms, or even industrial espionage. Strong experi-
ence effects therefore imply that output is less than the socially efficient level. MTPs
can improve social welfare by correcting the output shortfall associated with these
experience effects.7
This suggests a role for MTPs in national and international technology policies.
MTPs are best limited to emerging technologies with steep industry experience
curves, a high probability of major long-term market penetration once subsidies are
removed, and price elastic demand. The condition that they be clean technologies
mitigates the risk of poor MTP performance by adding the value of displaced envi-
ronmental externalities. The recent technical and economic advances seen for a
range of renewable energy products make them ideal candidates for support through
market transformation programs, and I strongly urge federal action to reward the
early production and use of clean energy technologies. Finally, as with energy R&D
policy, public agencies should invest in a portfolio of new clean energy technologies
in order to reduce overall MTP program performance risk through diversification.
63
Energy Efficiency
To adequately address climate change we must decrease our dependence on fossil
fuels and increase our use of clean renewable systems as well as cut energy waste
and improve energy efficiency. What the U.S. wastes simply in the production of
electricity (24 quadrillion BTUs annually) is more energy than is used by the en-
tire Japanese economy for all end uses. According to DOEs recent Interlaboratory
Working Group study, Scenarios for a Clean Energy Future,8 cost effective end-use
technologies could reduce electricity consumption by 1,000 billion kWh by 2020,
which would almost entirely offset business as usual projected growth in electricity
use. This level of savings would reduce U.S. carbon emissions by approximately 300
million metric tons of carbon compared to a business-as-usual scenario.
There is often confusion about the definition of energy efficiency and energy con-
servation that is important to clarify. Energy efficiency means improving equipment
and systems to get the same output (e.g., miles traveled or widgets produced) but
with less energy input. Energy conservation means reducing energy use, and at
times may mean reducing the services received. Examples of energy conservation in-
clude changing thermostat settings, reducing lighting levels, and driving less. To the
extent energy conservation eliminates waste it is generally desirable. For example,
many commercial buildings are excessively lit and over air-conditioned, wasting
large amounts of energy without providing any useful service.
Energy efficiency has been the single greatest asset in improving the U.S. energy
economy. Based on data from the Energy Information Administration (EIA), U.S.
primary energy use per capita in 2000 was almost identical to that in 1973, while
over the same period economic output (GDP) per capita increased 74 percent. Be-
tween 1996 and 2000, GDP increased 19 percent while primary energy use in-
creased just 5 percent. In addition, national energy intensity (energy use per unit
of GDP) fell 42 percent between 1973 and 2000. About 60 percent of this decline
is attributable to real energy efficiency improvements and about one-quarter is due
to structural changes and fuel switching. These statistics clearly indicate that en-
ergy use and GDP do not have to grow or decline in lock step with each other, but
rather that GDP can increase while energy use does not.
If the United States had not dramatically reduced its energy intensity over the
past 27 years, consumers and businesses would have spent at least $430 billion
more on energy purchases in 2000. Energy efficiency improvements have contrib-
uted a great deal to our nations economic growth and increased standard of living
over the past 25 years, and there continues to be much potential for energy effi-
ciency increases in the decades to come. It certainly represents the best short-term
option for addressing todays environmental and energy concerns. The U.S. Depart-
ment of Energy (DOE) estimates that increasing energy efficiency throughout the
economy could cut national energy use by 10 percent or more in 2010 and about
20 percent in 2020, with net economic benefits for consumers and businesses. The
American Council for an Energy-Efficient Economy (ACEEE) estimates that adopt-
ing a comprehensive set of policies for advancing energy efficiency could lower na-
tional energy use by as much as 18 percent in 2010 and 33 percent in 2020, and
do so cost-effectively. Many of these changes can be accomplished at negative cost,
while others can be realized for only a few cents per kWh, far less than the cost
delivered by new power plants.
Increasing the efficiency of our homes, appliances, vehicles, businesses, and indus-
tries must be an important part of a sound national energy and climate change pol-
icy. Increasing energy efficiency reduces energy waste without forcing consumers to
cut back on energy services or amenities, lowers U.S. GHG emissions; saves con-
sumers and businesses money since the energy savings more than pay for any in-
crease in first cost, reduces the risk of energy shortages, reduces energy imports,
and reduces air pollution. Furthermore, increasing energy efficiency does not
present a trade-off between enhancing national security and energy reliability on
the one hand and protecting the environment on the other, as do a number of en-
ergy supply options. Increasing energy efficiency is a win-win strategy from the
perspective of economic growth, national security, reliability, and environmental
protection.
Interested consumersboth residential and commerciallack access to informa-
tion on energy efficient options. Such market barriers to energy efficiency tech-
nologies exist and will continue to persist if we do not invest in tax and market in-
centives to encourage their implementation in all sectors of our economy.
Climate Change Policy
With proper policy support, investments in renewable energy and energy effi-
ciency can increasingly be justified based on economic arguments alone. At the same
time, the U.S. is currently squandering a critical opportunity to provide global envi-
64
ronmental leadership that is also good business. The need for leadership on the
global climate issue has become particularly apparent with President Bushs recent
rejection of the Kyoto Protocol. Domestic political opposition to U.S. leadership in
this area has been based on outdated views of the science and economics of climate
change. First the science is now widely accepted and, second several recent com-
prehensive analyses have shown that while the costs of inaction on global warming
can be catastrophic the economic benefits of innovative actions to reduce the health
and environmental impacts of energy use can be substantial. This represents the
classic win-win scenario. Unfortunately, significant action on climate change miti-
gation is in jeopardy unless the administration returns to the promise made by
President Bush to take steps to control our nations greenhouse gas emissions. I ap-
plaud the Chairman and ranking member on this Committee and others in the Sen-
ate for their attempts to do just that.
The U.S. can reduce GHG emissions while improving our economic efficiency, cre-
ating jobs and saving consumers money, maintaining our technological leadership,
and achieving other environmental benefits. Policies to encourage the extensive de-
velopment and deployment of renewable energy and energy efficiency technologies
are a critical part of this equation.
I strongly support the recent bills introduced in Congress to reduce pollutant
emissions from electricity generation by Senators Jeffords and Lieberman (S.556)
and Representatives Boehlert and Waxman (H.R. 1256). This legislation contained
provisions that addressed the environmental impact and competitive distortions cre-
ated by the patchwork of unequal and inadequate standards that currently apply
to electric power plants nationwide. The bill puts a national cap on emissions from
power plants of nitrogen oxides, sulfur oxides, mercury, and carbon dioxide, and al-
lows market-oriented mechanisms such as emissions trading to meet the reduction
requirements. The reductions in carbon dioxide would bring emissions levels back
to 1990 levels by 2007, the same level implied by the non-binding targets of the Rio
Treaty of 1992, as ratified by the U.S. Senate. Our analysis indicates that if imple-
mented in an expedient but planned process, consistent with these legislative begin-
nings, that the costs would likely be dwarfed by the resulting benefits of industrial
innovation.9,10
Legislation that controls the four major power plant pollutants in an integrated
package will help reduce regulatory uncertainties for electric generators and will be
less costly than separate programs for each pollutant. Integrated control encourages
system-wide efficiency improvements and increased utilization of cleaner fuels. And
while voluntary action by American companies is an attractive option to consider,
in the last ten years voluntary actions have failed to reduce carbon dioxide emis-
sions in the U.S. Instead, emissions have increased by 15.5 percent since 1990 and
continue to increase. The EIA recently released data showing a substantial increase
in U.S. carbon dioxide emissions in 2000 of 2.7 percent from the preceding year,
with the annual average since 1990 being 1.5 percent. This demonstrates the need
for mandatory emissions reductions now and shows that solutions will be more cost-
ly and difficult if we continue to stall.
Last December an EIA analysis concluded that such mandatory carbon dioxide
caps would cause a large increase in future electricity prices that President Bush
then used as a justification for abandoning his campaign promise to regulate carbon
emissions from utilities. A more recent analysis by EPA uses the same model but
instead allows for the use of advanced technologies to reduce emissions, which are
more likely to emerge under tighter emission constraints, as opposed to using the
standard reference case of todays technologies as the original analysis did. The re-
estimation finds that this simple adjustment substantially decreases the projected
price increases.11 Furthermore, as will now be discussed, if additional policies for
encouraging the development and use of renewable and energy efficiency tech-
nologies to reduce GHG emissions are included in the analysis, the average con-
sumer electricity price will then be comparable to business as usual projections.
Policy Options for Renewable Energy and Energy Efficiency Technology
Development
I firmly believe that the ultimate solutions to cost-effectively reducing our GHG
emissions must be based on private sector investment bolstered by well-targeted
government R&D and incentives for emerging clean energy technologies. This must
be coupled with policies that open markets to new clean generating capacity. We
now have the opportunity to build a sustainable energy future by engaging and
stimulating the tremendous innovative and entrepreneurial capacity of the U.S. pri-
vate sector. To accomplish this, we must pursue policies that guarantee a stable and
predictable economic environment for advancing clean energy technologies. This can
65
be further bolstered by market incentives to reward actions that further the public
good.
With these thoughts in mind, I present several options that will start us down
a path of GHG reductions while at the same time creating a sustainable, economic
and environmentally sound U.S. energy policy.
1) Increase federal R&D funding for renewable energy and energy efficiency tech-
nologies
To date, federal investment in renewable energy and energy efficient technologies
has been sparse and erratic, with each year producing an appropriations battle that
is often lost. The resulting financial and policy uncertainty discourages effective en-
ergy technology development and deployment in the marketplace.12 With energy
now a clear national priority, and I hope climate change quickly becoming one, fund-
ing for the U.S. DOEs Energy Efficiency and Renewable Energy Program must be
substantially and systematically increased. The realization that R&D funding pro-
vides a critical driver to economic growth has resulted in important commitments
in Congress, particularly in the life sciences, to double R&D funding in five to ten
years. The same return on investment exists in the energy sector, but it has not
been translated into increased R&D funding for new renewable and energy effi-
ciency technologies. If the U.S. expects to be a world leader in this industry, as it
is in the biomedical and high-tech sectors, such investments in renewable energy
and energy efficiency are essential.
DOE recently documented 20 of its most successful energy efficiency projects as
having saved the nation 5.5 quadrillion BTUs of energy. This is worth about $30
billion in avoided expenses, mostly over the last decade, with a cost to tax payers
of only $712 million, less than 3 percent of the energy bill savings so far. Study after
study concludes that spending of taxpayers money on energy efficiency R&D has
been a very sound investment.13,14 The Bush Administrations initially proposed
deep cuts in their FY2002 budget for DOEs renewable energy and energy efficiency
programs must be reversed and turned into budget increases. Such cuts would harm
existing public-private partnerships as well as the R&D at the national labs and
elsewhere. Thankfully, some of these cuts are being restored to current funding lev-
els, in current appropriations bills. This budgetary roller-coaster harms all invest-
ments, sends mixed signals to industry, and as a result is the least efficient form
of both energy and financial policy. In order to address climate change seriously we
must at a minimum double this funding in the next five years (a 1520 percent in-
crease per year), as was recommended by PCAST.15
Federal funding and leadership for renewable energy and energy efficiency
projects has resulted in a small number of notable successes, such as the EPAs En-
ergy Star and Green Lights Programs that has now been emulated in a number of
countries. For example, 15 percent of the public sector building space in the country
has now signed up for Energy Star Buildings Program and saved more than 21 bil-
lion kWh of energy in 1999 or about 4.4 million metric tons of carbon, resulting in
$1.6 billion in energy bill savings according to EPA. Despite these achievements,
funding in this area has been both scant, and so uneven that private sector involve-
ment has actually been discouraged. By increasing funding for these EPA programs
their scope could be considerably expanded resulting in substantially greater sav-
ings.
A combination of a federal program for steadily increasing funding for clean en-
ergy and energy efficiency R&D and active political leadership would transform the
clean energy sector from a good idea to a pillar of the new economy. In particular,
promising technologies such as fuel cells deserve special attention. Fuel cell develop-
ment is attracting significant public and private funding and offers the promise of
being a keystone technology for the ultimate transition from natural gas, petroleum,
and coal energy to a renewable and hydrogen based energy economy.
2) Provide tax incentives for companies and individuals that develop and use renew-
able energy and energy efficiency technologies
The R&D tax credit has proven remarkably effective and popular with private in-
dustry, so much so that there is a strong consensus in both Congress and the Ad-
ministration to make this credit permanent. In addition to this support of private
sector R&D, an increased tax incentive for R&D investment in renewable and en-
ergy efficiency technologies is exactly the type of well-targeted federal policy that
is needed. To compliment this further, tax incentives directed toward those who use
the technologies would provide the demand pull to accelerate the technology trans-
fer process and rate of market development. The U.S. has largely lost its position
as the global leader in energy innovation, resulting in the loss of jobs and earning
potential for U.S. companies precisely at the time when the international market
66
for clean energy technologies is booming. Our domestic industries as well as the
global energy economy would both benefit directly and significantly from a clear
commitment to U.S. clean energy leadership.
Currently, Federal tax expenditures have an unequal distribution across primary
energy sources, distorting the market in favor of many conventional energy tech-
nologies. The dollar apportionment of expenditures, including income and excise tax
credits as well as direct subsidies (such as the Renewable Energy Production Incen-
tive) does not reflect the market distribution of fuels nor does it encourage the es-
tablishment of a market niche for disadvantaged emerging technologies. For exam-
ple, renewable fuels make up four percent of the U.S. primary energy supply, and
yet receive only one percent of Federal tax expenditures and direct expenditures
combined (see table below). This does not include the Alcohol Fuels Excise Tax, di-
rected towards ethanol production. The largest single tax credit in 1999 was the Al-
ternative Fuel Production Credit,16 which totaled over one billion dollars. This in-
come tax credit was designed to reduce dependence on foreign energy imports by
encouraging the production of gas, coal, and oil from non-conventional sources (such
as tight gas formations and coalbed methane) found within the United States. How-
ever, support for the production and further development of renewable fuels, all
found domestically, would have a greater long-term effect on the energy system than
any expansion of fossil-fuel capacity, with major health and environmental benefits
as an added bonus.
PRIMARY ENERGY SUPPLY DIRECT EXPENDITURES and

1998 CONSUMPTION TAX EXPENDITURES (1999)
FUEL SOURCE VALUE VALUE
(quads, quad- PERCENT PERCENT
(million $)
rillion BTU)
Oil 36.57 40% 263 16%
Natural Gas 21.84 24% 1,048 64%

Alternative Fuels Credit (1,030)
Coal 21.62 24% 85 5%
Oil, Gas, Coal Combined 205 12%
Nuclear 7.16 8% 0
Renewables 3.48 4% 19 1%
Electricity 40 2%
Total 90.67 100% 1,660 100%

Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 1999:
Primary Energy, (Washington, DC: DOE, 1999).
3) Improve federal standards for vehicle fuel economy and increase incentives for
high fuel economy vehicles
New vehicles types based on hybrid gasoline-electric and fuel cell-electric power
systems are now being produced in commercial (gasoline hybrid) and prototype (fuel
cell) quantities. These vehicles are combining high-efficiency AC induction or perma-
nent magnet electric motors with revolutionary power systems to produce a new
generation of motor vehicles that are vastly more efficient than todays simple cycle
combustion systems. The potential for future hybrid and fuel cell vehicles to achieve
up to 100 miles per gallon is believed to be both technically and economically viable
in the near-term, and with continued commitments from industry, only clear federal
guidelines and support are needed to move from planning to reality. In the longer
term, fuel cell vehicles running directly on hydrogen promise to allow motor vehicle
use with very low fuel-cycle emissions, and again better government and industry
coordination and cooperation over the next ten years could do much to hasten the
development of this promising technology.
The improvements in fuel economy that these new vehicle types offer will help
to slow growth in petroleum demand, reducing our oil import dependency and trade
deficit. While the Partnership for a New Generation of Vehicles helped to generate
67
some vehicle technology advances, an increase in the Corporate Average Fuel Econ-
omy (CAFE) standard, which has been stagnant for 12 years now, is required to pro-
vide an incentive for companies to bring these new vehicles types rapidly to market.
Tax credits and incentives are an important complement to raising CAFE, but I do
not believe that they alone can accomplish the key goal of simultaneously stimu-
lating production of high fuel economy vehicles and provide strong incentives for
consumers to purchase them.
Now, after five years of Congressional bans, studies on the potential for increases
in CAFE standards to cost-effectively reduce petroleum demand are now underway
by the Department of Transportation and the National Academy of Sciences. These
studies, with results expected later this summer, will help to suggest optimal levels
of increased standards, given the costs and benefits of higher fuel economy, as well
as phase-in schedules that will protect the competitive interests of domestic auto-
makers.
In the meantime, other recent analyses of the costs and benefits of providing high-
er fuel economy motor vehicles have been conducted by the Union of Concerned Sci-
entists,17,18 MIT,19 OTA,20 and Oak Ridge National Lab/ACEEE.21 These studies
have generally concluded that with longer-term technologies, motor vehicle fuel
economy can be raised to 45 mpg for cars for $500 to $1,700 per vehicle retail price
increase,22 and to 30 mpg for light trucks for $800 to $1,400 per vehicle retail price
increase.23 These improvements could be the basis for a new combined fuel economy
standard of 40 mpg, which could be instituted after first removing the separate fuel
economy standards for cars and light trucks (i.e. closing the light truck loophole
as proposed in S. 804 by Senators Feinstein and Snowe and H.R. 1815 by Rep.
Olver). I believe the 40 mpg combined car and light truck standard could be accom-
plished in the 2008 to 2012 timeframe with negligible net cost once fuel savings are
factored in, given adequate lead time for the auto industry to re-tool for this new
generation of vehicles.
I also strongly support tax credits for hybrid electric vehicles, battery electric ve-
hicles, and fuel cell vehicles. These funds could in principle be raised through a revi-
sion of the archaic gas guzzler tax, which does not apply to a significant percentage
of the light duty car and truck fleet. The tax penalty and tax credit in combination
could be a revenue-neutral fee-bate scheme, similar to one recently proposed in
California, that would simultaneously send two strong price signals rewarding eco-
nomical vehicles (particularly those using advanced drive systems) and penalizing
uneconomical ones. Furthermore, this would help jump start introduction and pur-
chase of the most innovative, fuel-efficient technologies. However the incentives are
designed, they should be based primarily on energy-use performance and ideally
provide both fuel savings and lower emissions. I support the CLEAR Act, S. 760,
introduced by Senators Hatch, Rockefeller, and Jeffords, and the companion bill
(H.R. 1864) introduced by Rep. Camp.
4) Establish a federal Renewable Portfolio Standard (RPS) to help build renewable
energy markets
The RPS is a renewable energy content standard, akin to efficiency standards for
vehicles and appliances that have proven successful in the past. A gradually in-
creasing RPS provides the most economically efficient way of ensuring that a grow-
ing proportion of electricity sales are provided by renewable energy, and is designed
to integrate renewables into the marketplace in the most cost-effective fashion. In
this manner, the market picks the winning and losing technologies and projects, not
administrators. With all the discussion and hype about market forces, a RPS pro-
vides the one true means to use market forces most effectively. I recommend a re-
newable energy component of 2 percent in 2002, growing to 10 percent in 2010 and
20 percent by 2020 that would include wind, biomass, geothermal, solar, and landfill
gas. A number of studies indicate that this 20 percent in 2020 level of an RPS is
broadly good for business and can readily be achieved.24,25 This standard is similar
to the one proposed by Senators Jeffords and Lieberman in the 106th Congress (S.
1369). This bill has not been reintroduced nor has any other RPS legislation been
introduced in this Congress yet. States that decide to pursue more aggressive
goalsmany of which make economic and environmental sensecould be rewarded
through an additional federal incentive program. To achieve compliance a federal
RPS should use market dynamics to stimulate innovation through an active trading
program of renewable energy credits. Renewable credit trading is analogous to the
sulfur allowance trading system established in the Clean Air Act. Like emissions
trading, it is designed to be administratively simple and to increase flexibility and
decrease the cost of compliance with the standard. Electricity suppliers can generate
renewable electricity themselves, purchase renewable electricity and credits from
generators, or buy credits in a secondary trading market. The coal, oil, natural gas,
68
and nuclear power industries are mature; yet continue to receive considerable gov-
ernment subsidies. Moreover, the market price of fossil and nuclear energy does not
include the cost of the damage they cause to the environment and human health.
Conversely, the market does not give a value to the environmental and social bene-
fits of renewables. Without the RPS or a similar mechanism, many renewables will
not be able to compete in an increasingly competitive electricity market focused on
producing power at the lowest direct cost. The RPS is designed to deliver renew-
ables that are most ready for the market. Additional policies are still needed to sup-
port emerging renewable technologies, like photovoltaics, that have enormous poten-
tial to eventually become commercially competitive through targeted investment in-
centives. Smart investors typically acquire a portfolio of stocks and bonds to reduce
risk. Including renewables in Americas power supply portfolio would do the same
by protecting consumers from fossil fuel price shocks and supply shortages. A prop-
erly designed RPS will also establish a viable market for the long-term development
of Americas renewable energy industries, creating jobs at home and export opportu-
nities abroad.
The RPS is the surest market based approach for securing the public benefits of
renewables while supplying the greatest amount of clean power for the lowest price.
It creates an ongoing incentive to drive down costs by providing a dependable and
predictable market, which has been lacking in this country. The RPS will reduce
renewable energy costs by:
Providing a revenue stream that will enable manufacturers and developers to
obtain reasonable cost financing and make investments in expanding capacity
to meet an expanding renewable energy market.
Allowing economies of scale in manufacturing, installation, operation and main-
tenance of renewable energy facilities.
Promoting vigorous competition among renewable energy developers and tech-
nologies to meet the standard at the lowest cost.
Inducing development of renewables in the regions of the country where they
are the most cost-effective, while avoiding expensive long-distance transmission,
by allowing national renewable energy credit trading.
Reducing transaction costs, by enabling suppliers to buy credits and avoid hav-
ing to negotiate many small contracts with individual renewable energy
projects.
Analysis of the 20 percent RPS target in 2020 that I strongly support would result
in renewable energy development in every region of the country with most coming
from wind, biomass, and geothermal sources. In particular, the Plains, Western, and
Mid-Atlantic States would generate more than 20 percent of their electricity from
renewables as shown in Figure 4. Electricity prices are projected to fall 13 percent
between 1997 and 2020 under this RPS. While this is not as much as the projected
18 percent decrease under business-as-usual without an RPS, it is nonetheless a
substantial decrease and has additional nation-wide environmental and health bene-
fits (see Figure 5).26 This increase in renewable energy would also reduce some of
the projected rise in natural gas prices for all gas consumers by 5 percent in 2020
again saving households money who heat with natural gas.
Texas has been a leader in developing and implementing a successful RPS that
then Governor Bush signed into law in 1999. The Texas law requires electricity com-
panies to supply 2,000 MW of new renewable resources by 2009. The state may
meet this goal by the end of 2002, seven years early. The RPS has also been signed
into law in Arizona, Connecticut, Maine, Massachusetts, Nevada, New Jersey, New
Mexico, Pennsylvania, and Wisconsin. Minnesota and Iowa also have minimum re-
newables requirements similar to an RPS. Bills with the RPS are also pending in
several states. Variations in the details of these programs have kept them from
being overly successful. A clear and properly constructed federal standard would
correct these problems, and set a clear target for industry research, development,
and market growth.27
5) Institute federal standards needed to support distributed small-scale energy gen-
eration and cogeneration (CHP)
Small scale distributed electricity generation has several advantages over tradi-
tional central-station utility service. Distributed generation reduces energy losses in-
curred by sending electricity through an extensive transmission and distribution
network (often an 810 percent loss of energy), defers the need for new transmission
capacity and substation upgrades, provides voltage support, and reduces the de-
mand for spinning reserve capacity. In addition, the location of generating equip-
69
ment close to the end use allows waste heat to be utilized to meet heating and hot
water demands, significantly boosting overall system efficiency.
Distributed generation has faced several barriers in the marketplace, most nota-
bly from complicated and expensive utility interconnection requirements. These bar-
riers have led to a push for national safety and power quality standards, currently
being finalized by the Institute of Electrical and Electronics Engineers (IEEE). Al-
though adoption of these standards would significantly decrease the economic bur-
den on manufacturers, installers, and customers, the utilities are allowed discretion
in adopting or rejecting these standards. Therefore, a Federal mandate to require
utilities to accept these standards, along with tax incentives for utilities and cus-
tomers who use distributed generation systems would ease their acceptance into the
marketplace.
While all distributed generation systems have the advantage of lower line losses,
there is large variability in the overall efficiencies of the systems based on system
type and installation. It is important to design credits based on overall efficiency
and offset emissions compared to central station generation. This is accomplished
by giving highest priority to renewable systems or fossil fuel systems that utilize
waste heat through combined heat and power designs. While a distributed genera-
tion system may achieve 3545 percent electrical efficiency, the addition of heat uti-
lization can raise overall efficiency to 80 percent. U.S. CHP capacity in 1999 totaled
52,800 MW of power, but the estimated potential is several times this. Industrial
CHP potential is estimated to be 88,000 MW, the largest sectors being in the chemi-
cals and paper industries. Commercial CHP potential is estimated to be 75,000 MW,
with education, health care, and office building applications making up the most sig-
nificant percentages 28 (see Figure 6). This tremendous resource has the advantage
of offsetting separate electric and fossil fuel heating systems, but CHP applications
are only feasible through the use of onsite distributed electricity generation.
I support at least a 10 percent investment tax credit and seven-year depreciation
period for renewable energy systems or combined heat and power systems with an
overall efficiency of at least 6070 percent depending on system size. This proposal
is similar to one included in the Murkowski-Lott energy bill (S. 389), the Bingaman-
Daschle energy bill (S. 596), as well as bills targeted to CHP promotion introduced
by Rep. Wilson (H.R. 1045) and Rep. Quinn (H.R. 1945). It is important to note
again that these measures would be most effective coupled with mandated utility
interconnection requirements.
The U.S. should pursue a policy of not only net-metered energy use, but also real-
time pricing where homeowners, businesses, and industry can all participate fully
in supplying their excess power generation into the market. Homes with solar pho-
tovoltaic, wind, or fuel-cell systems should be able to sell their excess energy. Open-
ing the energy supply markets to local generation will provide strong, economically
sound, signals to the utilities, the Qualifying Facilities, and homeowners that the
energy market is fair, accessible, and one where clean energy generation will be re-
warded. The investment in the grid, largely in the form of upgrades to local sub-
stations, will lead to further energy efficiency benefits as an added bonus. Federal
leadership and standards are needed to guide this transformation.
6) Enact new and strengthen existing efficiency standards on buildings, equipment,
and appliances
Buildings, appliance, and equipment standards are an important strategy for pro-
moting energy efficiency. Tax credits, while important, do not necessarily remove
the market barriers that prevent clean energy technologies from spreading through-
out the marketplace. Minimum efficiency standards were adopted by President
Reagan in 1987, and then expanded under President Bush in 1992, because market
barriers inhibited the purchase of efficient appliances and equipment. These bar-
riers include lack of awareness, rush purchases when an existing appliance breaks
down, and purchases by builders and landlords. Figure 7 shows how federal stand-
ards dramatically increased the market share of highly efficient magnet ballasts
used for lighting.
Significant advances in heating and cooling system, motor, and appliance effi-
ciency, have been made in recent years, but more improvements are technologically
possible and economically feasible. A clear federal statement of desired improve-
ments in system efficiency is needed to remove uncertainty and reduce the economic
costs of implementing these changes. Under such a federal mandate, efficiency
standards for equipment and appliances could be gradually increased, helping to ex-
pand the market share of existing high efficiency systems.29
Historically, building, appliance, and equipment standards have proven to be one
of the federal governments most effective energy-saving programs. Analyses by
DOE and others indicate that in 2000, appliance and equipment efficiency standards
70
saved 1.2 quadrillion BTUs of energy (1.3 percent of U.S. electric use) and reduced
consumer energy bills by approximately $9 billion with energy bill savings far ex-
ceeding any increase in product cost. By 2020, standards already enacted will save
4.3 quadrillion BTU/year (3.5 percent of projected U.S. energy use), and reduce peak
electric demand by 120,000 MW (more than a 10 percent reduction). ACEEE esti-
mates that energy would be reduced in 2020 by 1.0 quadrillion BTU by quickly
adopting higher standards for equipment currently covered under federal laws, such
as central air-conditioners and heat pumps, and by adopting new standards for
equipment not covered, such as torchiere (halogen) light fixtures, commercial refrig-
erators and reduction of appliances standby power consumption (see Figure 8 for
standby power used by todays televisions). This is nearly a 1 percent reduction in
projected U.S. energy use, resulting in a savings of nearly 20 million metric tons
of carbon. Consumers and businesses would see their energy bills decline by ap-
proximately $7 billion per year by 2020. Additional savings can be achieved by fu-
ture updates and expansions to the appliance standards program; the savings esti-
mated here just apply to actions that can be taken in the next few years.
7) Institute a National Public Benefits Fund based on revenue collected from a na-
tional, competitively neutral wires charge
Electric utilities have historically funded programs to encourage the development
of a host of clean energy technologies. Unfortunately, increasing competition and de-
regulation have led utilities to cut these discretionary expenditures in the last sev-
eral years. Total utility spending on demand side management programs fell more
than 50 percent from 1993 to 1999. Lack of investment in the future has been a
hallmark of utility planning in face of deregulation, and needs to be reversed
through rewards (such as tax incentives) for companies that re-invest profits and
invigorate the power sector.30 I recommend a national public benefits fund which
could be funded through a $0.002/kWh charge. This concept and amount were put
forth in bills sponsored by Senator Jeffords (S. 1369) and Rep. Pallone (H.R. 2569)
in the last Congress and in the Bingaman-Daschle energy bill (S. 597). Furthermore,
there should be federal matching of state funds. The funds could be used for pro-
grams promoting:
R&D
Low-cost financing or financing guarantees
Grants, production incentives, or buy-downs for project costs
Infrastructure development
Development of uniform standards for siting, permitting, and connection with
the electrical grid
Education of the public on the benefits and costs of clean energy technologies
and efficiency
Incentives, such as rebates, to help establish markets for new products
Installation, operation, and maintenance of renewable energy and energy effi-
cient technologies
Cost and Benefit Analysis of Clean Energy Policies on Electricity Generation
I agree wholeheartedly with the findings of the Union of Concerned Scientists re-
port, Clean Energy Blueprint: A Smarter National Energy Policy for Today and the
Future,31 which examines the costs, environmental impacts, and effects on fossil fuel
prices and consumer energy bills of a package of clean energy polices. These policies
include: incentives for consumers to purchase more efficient appliances; stricter en-
ergy codes for buildings; residential and commercial building retrofits; voluntary
programs with industry to reduce energy use meaningfully; a RPS requiring elec-
tricity providers to obtain 20 percent of their supplies from renewables power
sources by 2020 using tradable renewable energy credits; an expanded production
tax credit to include all renewables; and a public benefits fund funded through a
$0.002/kWh charge to customers.
This analysis is based on the Energy Information Administrations National En-
ergy Modeling Systems (NEMS) with modifications used in the Interlaboratory
Working Groups study to accurately account for the growth and costs of the renew-
able and energy efficiency technologies modeled. Under the business-as-usual sce-
nario the nation is expected to increase its reliance on coal and natural gas to meet
strong growth in electricity use of 42 percent by 2020 as shown in Figure 9. To meet
this demand it is estimated that 1,300 300MW power plants would need to be built
with electricity generation from non-hydro renewables increasing from 2 percent
71
today to only 2.4 percent of total generation in 2020. This amounts to a policy of
energy and economic stagnation. If, on the other hand, the set of clean energy po-
lices listed above are implemented energy efficiency and renewables will meet a
much larger share of our future energy needs with energy efficiency measures al-
most completely offsetting the projected business-as-usual growth in electricity (Fig-
ure 10). Unlike the Bush-Cheney energy plan, this clean energy strategy plan builds
energy security for the U.S. by supporting energy diversity and domestic supplies.
The result is a large decrease in emissions from the utilities sector compared to
business-as-usual projections with declines continuing beyond 2020. Figure 11 com-
pares the projected power plant carbon dioxide reductions with the level proposed
by the Senator Jeffords and Representative Waxmans 4-pollutant power plant
emission reduction bills (S. 556 and H.R. 1256). Through a steady shift to clean en-
ergy production, the requirements of these bills would not be difficult or expensive
to meet, and if anything are expected to increase U.S. economic activity.
Finally the more efficient use of energy and the switch from fossil fuels to renew-
able energy sources saves consumers money by decreasing energy use in homes,
businesses, and industry. This results in price drops for natural gas, as shown in
Figure 12, and reduced household electricity bills from business-as-usual predictions
(Figure 13), while average consumer prices are about the same. One of the greatest
advantages that energy efficiency and renewable energy sources offer over new
power plants, transmission lines, and pipelines is the ability to deploy these tech-
nologies very quickly. We can begin to deploy these technologies now and so reap
the benefits all that much sooner.32 CO2 emission reductions will also have a clean
cascade effect on the economy since many other pollutants are emitted in concert
with carbon from fossil fuel use.
A range of studies are all coming to the conclusion that simple but sustained
standards and investments in a clean energy economy are not only possible but
would be highly beneficial to our nations future prosperity.33 A recent analysis of
the whole economy shows that we can easily meet Kyoto type targets with a net
increase of 1 percent in the Nations GDP 2020.34 The types of energy efficiency and
renewable technologies and policies described here have already proven successful
and cost-effective at the national and state level. I argue that this is even more rea-
son to increase their support. Figure 14 shows how a combination of readily avail-
able options can be used to meet the Kyoto Protocol targets. This type of strategy
would cost-effectively enable us to meet goals of GHG emission reductions35 while
providing a sustainable clean energy future.
Conclusions
We stand at a critical point in the energy, economic, and environmental evolution
of the United States. Renewable energy and energy efficiency are now not only af-
fordable, but their use will also open new areas of innovation and technological and
economic leadership for the U.S., if we choose to embrace these options. Creating
opportunities andcriticallya fair market place for a clean energy economy re-
quires leadership and vision. The tools to implement this evolution are now well
known, and are listed in the previous section. I look forward to the opportunity to
work with you to put these cost-effective measures into effect.
Biographical Sketch: Daniel M. Kammen
Daniel M. Kammen received his undergraduate degree physics from Cornell Uni-
versity 1984, and his Masters (1986) and Doctorate (1988) degrees in physics, from
Harvard University. He was a Bantrell & Weizmann Postdoctoral Fellow at the
California Institute of Technology, and then a lecturer in the Department of Physics
at Harvard University. From 19921998 Kammen was on the faculty of the Wood-
row Wilson School of Public and International Affairs at Princeton University,
where he was Chair of the Science, Technology and Environmental Policy Program.
Kammen is now Professor of Energy and Society in the Energy and Resources
Group (ERG), and in the Department of Nuclear Engineering at the University of
California, Berkeley. At Berkeley Kammen is the founding director of the Renew-
able and Appropriate Energy Laboratory (http://socrates.berkeley.edu/rael), and is
campus representative to the University of California Energy Institute. He has been
a Lecturer in Physics and Natural Science at the University of Nairobi.
Kammens research centers on the science, engineering, economics and policy as-
pects of energy management, and dissemination of renewable energy systems. He
also works on the health and environmental impacts of energy generation and use;
rural resource management, including issues of gender and ethnicity; international
R&D policy, climate change; and energy forecasting and risk analysis. He is the au-
thor of over 110 journal publications, a book on environmental, technological, and
health risks (Should We Risk It?, Princeton University Press, 1999) and numerous
72
reports on renewable energy and development. Kammen received the 1993 21st
Century Earth Award and is a Fellow of the American Physical Society. He is a
Permanent Fellow of the African Academy of Sciences. For information of any
of these activities and for copies of Professor Kammens writings, see http://soc-
rates.berkeley.edu/dkammen.
Figure 1. Levelized cost of electricity forecast for renewable energy tech-

nologies (U.S. DOE, 1997)
Figure 2. Actual electricity costs in year 2000
Source: Ottinger, R. L. et al. (1991) Environmental Costs of Electricity (Oceana Pub-

lications, Inc: New York); U.S. Department of Energy (2000), Annual Energy Out-
look 2000, DOE/EIA0383(00), Energy Information Administration, Washington, D.
C., December; U.S. DOE, 1997.
710kamm2.eps
710kamm1.eps
73
Figure 3. Progress ratios (experience curves) for photovoltaics, windmills,
and gas turbines
Source: IIASA/WEC (1995) Global Energy Perspectives to 2050 and Beyond

(Laxenburg, Austria and London, UK).
Figure 4. Renewable energy generation in the U.S. by region for a RPS with
a 20 percent target in 2020 (Clemmer, 1999)
710kamm4.eps
710kamm3.eps
74
Figure 5. Average monthly electricity bill for typical non-electric heating
household
Source: Nogee, A., Clemmer, S., Paulos, B., and Haddad, B. (1999) Powerful Solu-
tions: 7 Ways to Switch America to Renewable Energy, Union of Concerned Sci-
entists, January.
Figure 6. CHP growth potential within several sectors of the economy

(ACEEE, 2001)
710kamm6.eps
710kamm5.eps
75
Figure 7. Market Share of efficient magnetic ballasts for lighting (Interlab-
oratory Working Group, 2000)
Figure 8. Standby power consumption for a selection of 365 televisions
Source: K. Rosen, LBNL, US DOE, 1999.

710kamm8.eps
710kamm7.eps
76
Figure 9. Electricity Deregulation under business as usual * (Clemmer,
2001)
Figure 10. Energy generation with the implementation of various renew-

able energy and energy efficient policy options * (Clemmer, 2001)
710kam10.eps
710kamm9.eps
77
Figure 11. Power plant carbon dioxide emissions (Clemmer, 2001)
Figure 12. Natural gas prices (national average)* (Clemmer, 2001)
710kam12.eps
710kam11.eps
78
Figure 13. Typical household electricity bill (Clemmer, 2001)
Figure 14. Potential carbon reductions from energy efficiency and renew-
able energy measures
Source: Energy Foundation, 2001.

710kam14.eps
710kam13.eps
79
ENDNOTES
1. The Renewable and Appropriate Energy Laboratory: URL http://soc-
rates.berkeley.edu/rael
2. IPCC (Intergovernmental Panel on Climate Change) (2001) Climate Change
2001: The Scientific Basis, January.
3. National Research Council (NRC) (2001) Climate Change Science: An Analysis
of Some Key Questions, Committee on the Science of Climate Change, National Re-
search Council, National Academy Press, Washington, DC.
4. Herzog, A.V., Lipman, T.E., and Kammen, D.M. (2001) Energy Resource
Science and Technology Issues in Sustainable Development: Renewable Energy
Sources, in, OUR FRAGILE WORLD: Challenges and Opportunities for Sustainable
Development, forerunner to the Encyclopedia of Life Support Systems (EOLSS),
(UNESCOEOLSS Secretariat, EOLSS Publishers Co. Ltd.).
5. IPCCi, op. cit.
6. U.S. Department of Energy (1997) Renewable Energy Technology Characteriza-
tions, Topical Report Prepared by U.S. DOE Office of Utility Technologies and EPRI,
TR109496, December.
7. Duke, R. D., and Kammen, D. M. (1999), The economics of energy market
transformation initiatives, The Energy Journal, 20: 1564.
8. Interlaboratory Working Group (2000) Scenarios for a Clean Energy Future
(Oak Ridge, TN; Oak Ridge National Laboratory and Berkeley, CA; Lawrence
Berkeley National Laboratory), ORNL/CON476 and LBNL44029.
9. Kinzig, A. P. and Kammen, D. M. (1998) National trajectories of carbon emis-
sions: Analysis of proposals to foster the transition to low-carbon economies, Global
Environmental Change, 8 (3), pages 183208.
10. Krause, F., DeCanio, S, and Baer, P. (2001) Cutting Carbon Emissions at a
Profit: Opportunities for the U.S., (International Project for Sustainable Energy
Paths: El Cerrito, CA), May.
11. Personal communication, S. Laitner, EPA Office of Atmospheric Programs,
Washington, DC, 2001.
12. Margolis and Kammen, op. cit.
13. Presidents Committee of Advisors on Science and Technology (PCAST) (1997)
Federal Energy Research and Development for the Challenges of the Twenty-First
Century (Washington, D.C. OSTP).
14. Krause, F. et al., 2001, op cit.
15. PCAST, op cit.
16. Established by the Windfall Profit Tax Act of 1980. Tax credit is $3 per barrel
of oil equivalent produced, and phases out when the price of oil rises to $29.50 per
barrel (1979 dollars).
17. Mark, J. (1999) Greener SUVs: A Blueprint for Cleaner, More Efficient Light
Trucks, Union of Concerned Scientists.
18. David J. Friedman, Jason Mark, Patricia Monahan, Carl Nash, and Clarence
Ditlow (2001) Drilling in Detroit: Tapping Automaker Ingenuity to Build Safe and
Efficient Automobiles, U. of Concerned Scientists, Cambridge, MA.
19. Malcolm A. Weiss, John B. Heywood, Elisabeth M. Drake, Andreas Schafer,
and Felix F. AuYeung (2000) On the Road in 2020: A lifecycle analysis of new auto-
mobile technologies, Energy Laboratory, Massachusetts Institute of Technology,
MIT EL 00003, Cambridge, October.
20. Office of Technology Assessment (1995) Advanced Vehicle Technology: Visions
of a Super-Efficient Family Car, OTAETI638, Office of Technology Assessment,
U.S. Congress, Washington, D.C., September.
21. David L. Greene and John Decicco (2000) Engineering-Economic Analyses of
Automotive Fuel Economy Potential In The United States, Annual Rev. Energy En-
viron. 25: 477536.
22. Greene, D.L. and DeCicco J., op cit.
23. Interlaboratory Working Group, op cit.
24. Clemmer, S.L., Nogee, A., and Brower, M. (1999) A Powerful Opportunity:
Making Renewable Electricity the Standard, Union of Concerned Scientists, Janu-
ary.
25. PCAST, op cit.
26. Clemmer, S., Nogee, A, and Brower M. (1999) A Powerful Opportunity; Mak-
ing Renewable Electricity the Standard, Union of Concerned Scientists, January.
27. Rader, N. (2000) Getting it Right and Wrong in the States, Windpower
Monthly, pp. 4247, April.
28. Dixon, R. K. (2001) Office of Power Technologies, U.S. Department of Energy,
Second International CHP Symposium, Amsterdam, Netherlands, May.
80
29. Clemmer, S.L., Donovan, D., Nogee, A. (2001), Clean Energy Blueprint: A
Smarter National Energy Policy for Today and the Future, Phase I Union of Con-
cerned Scientists and Tellus Institute, June.
30. Margolis and Kammen, op cit;
31. Clemmer, S.L., Donovan, D., Nogee, A., op c it.
32. Kinzig and Kammen, op cit.
33. Interlaboratory Working Group, op cit.
34. Krause, F., et al, op cit.
35. Baer, P., Harte, J., Haya, B., Herzog, A.V., Holdren, J., Hultman, N.E.,
Kammen, D.M., Norgaard, R.B., and Raymond, L. (2000) Equity and Greenhouse
Gas Responsibility, Science, 289, page 2287.
Senator KERRY. Thank you very much. We will, Mr. Kammen.

Mr. German.
STATEMENT OF JOHN GERMAN, MANAGER, ENVIRONMENT

AND ENERGY ANALYSES, PRODUCT REGULATORY OFFICE,
AMERICAN HONDA MOTOR COMPANY, INC.
Mr. GERMAN. My name is John German. I am the manager of en-
vironmental energy analyses in the product regulatory office for
American Honda Motor Company.
I appreciate the opportunity to testify this morning on near, mid-
, and long-term technological opportunities for increased motor ve-
hicle fuel efficiency. I will summarize my prepared statement and
ask that the full statement be printed in the hearing record.
Senator KERRY. It will be printed in the record.
Mr. GERMAN. There is a popular misconception that vehicle man-
ufacturers have not introduced fuel-efficient technology since the
mid1980s. The basis of this belief is that car and light-truck
CAFE have remained constant for the last 15 years. The fact is,
however, that there has been a substantial amount of efficiency
technology introduced during this period, including lock-up torque
converters, port fuel injection, and four-valve-per-cylinder tech-
nologies.
However, this new technology has been employed to respond to
vehicle attributes demanded by the marketplace rather than to in-
crease fuel economy. Over the past two decades, consumers have
insisted on such features as enhanced performance, luxury and
safety, and greater utility. As reflected in my prepared statement,
even though vehicle weight increased 12 percent from 1987 to
2000, the zero to 60 acceleration time decreased by 22 percent from
1981 to 2000. This is because average horsepower increased by
more than 70 percent.
The bottom line is that it is these other attributes, not fuel econ-
omy, that influence customer decisions in the marketplace. We cal-
culate that if these technologies had been used solely for fuel econ-
omy instead of performance and other attributes, if the current car
fleet were still at 1981 performance weight and transmission levels,
then passenger CAFE would be almost 36 miles per gallon, rather
than the current level of 28.1. Since 1987, technology has gone into
the fleet that could have improved fuel economy by almost 1.5 per-
cent per year if it had not gone to other attributes demanded by
the market. Thus, while fuel economy did not increase, the fuel ef-
ficiency of the vehicles did.
We see four pathways to improve fuel efficiency in the future.
First, in the near term, we believe that the 1.5 percent efficiency
81
improvement from conventional technology could continue into the

future. There are a number of technologies that are just beginning
to penetrate the market, including direct injection gasoline engines,
five-speed automatic and six-speed manual transmissions, continu-
ously variable transmissions, cylinder cut-off during light-load op-
eration, and idle-off features.
Honda, for example, has been aggressive in incorporating fuel-ef-
ficient variable valve timing in almost 60 percent of our 2000
model year vehicles. Other manufacturers are beginning to utilize
this technology as well. However, for this level of fuel economy im-
provement to continue, it would require that all benefits of these
new technologies be applied to fuel economy and not the other vehi-
cle attributes such as comfort, convenience, and performance.
Second, use of materials for weight and strength optimization,
measures to reduce friction and accessory losses, and aerodynamic
designs can be effective in both the near and the long-term. Many
of these approaches to fuel efficiency were incorporated in our new
Acura seven-passenger sport utility, the MPX, which has the high-
est fuel economy in its class. They are also used extensively in the
Honda Insight, which attained 68 miles per gallon highway and 61
miles per gallon city.
While I will discuss the hybrid system in this vehicle in a mo-
ment, I simply want to point out that 30 percent of the enhanced
fuel economy of the Insight is attributable to body technologies,
such as an all-aluminum body and low rolling resistance tires.
Third, over the next five to fifteen years, we believe the most
promising opportunities will come through hybrid technology, vehi-
cles which employ two power sources. There are currently two such
vehicles sold in the U.S. today, the Honda Insight and the Toyota
Prius. There are some basic operating characteristics that help
shape the design of any hybrid system. The primary demands on
horsepower and torque occur while accelerating and climbing
grades. Minimal power is needed to maintain a vehicles speed
while cruising on a level road. By using an electric motor to provide
a power boost to the engine when needed, a smaller, more fuel-effi-
cient gasoline engine can be used.
In addition, the electric motor can be used to capture energy that
would normally be lost during deceleration and braking. This en-
ergy can then be used to recharge the battery. One of the at-
tributes of hybrids is that they run on gasoline and do not require
a new refueling infrastructure. Moreover, hybrids do not need to be
plugged in for recharging; they recharge themselves.
A number of manufacturers have announced their intentions to
introduce hybrid vehicles over the next few years. We believe that
a good hybrid system will give a 20 to 40 percent improvement in
fuel economy. While a number of challenges remain before we will
see high levels of hybrid penetration in the marketplace, there is
no greater challenge than cost.
Hybrid systems are not cheap. While manufacturers are under-
standably reluctant to discuss cost, hybrids could cost several thou-
sand dollars more than the equivalent conventional gasoline vehi-
cle. With fuel costs so inexpensive in the U.S. relative to Japan and
Europe, it is likely that hybrid sales will increase more quickly
there than in the U.S.
82
In the long-term, the most promising technology appears to be

fuel cell vehicles. Fuel cell vehicles run on hydrogen gas. The only
emission is water. Hondas work currently focuses on direct hydro-
gen fuel cell vehicles in which hydrogen is carried on board the ve-
hicle in highly compressed form and is used to make electric energy
to power the vehicle. Other manufacturers are working with re-
formers which convert a fuel like gasoline or methanol into hydro-
gen on board the vehicle.
While we have been making good progress in our work, major
hurdles remain. Reformers are expensive, take up a lot of room in
the vehicle, and are slow to warm up and respond to transient driv-
ing conditions. They reduce the efficiency of the vehicle, both be-
cause of the energy needed for the reforming process and because
the resulting fuel stream is not pure hydrogen. For compressed hy-
drogen fuel cell vehicles, in addition to significant technological
challenges, there would also be the need for a new refueling infra-
structure.
While fuel cell technology is promising, we must be realistic in
our expectations. We do not anticipate seeing a consumer fuel cell
vehicle market for at least one or two decades, and we must be for-
ever mindful of our experience with battery electric vehicles. A dec-
ade or so ago, we all thought battery electric vehicles were the fu-
ture, but the battery technology simply never evolved to the point
we expected. The best battery electric vehicles out there today have
a range of up to only 100 miles, take three to 8 hours to recharge,
and cost tens of thousands of dollars for the batteries alone, and
there are no technological breakthroughs on the horizon.
Mr. Chairman, I think there is much that technology can do to
achieve enhanced fuel efficiency, but we must be realistic about the
pace of technology and the hurdles that we will encounter along
the way. Also manufacturers can sell only what consumers are will-
ing to buy. Absent programs or marketplace conditions that stimu-
late demand or provide incentives, the manufacturers challenge
will be to increase fuel efficiency without sacrificing the perform-
ance, safety, convenience, and comfort that customers demand.
Thank you. I would be happy to answer any questions.
[The prepared statement of Mr. German follows:]
PREPARED STATEMENT OF JOHN GERMAN, MANAGER, ENVIRONMENT AND ENERGY
ANALYSES, PRODUCT REGULATORY OFFICE, AMERICAN HONDA MOTOR COMPANY, INC.
Good morning, my name is John German, Manager, Environment and Energy
Analyses, Product Regulatory Office, American Honda Motor Co., Inc. Honda appre-
ciates the opportunity to appear before the Senate Commerce, Science and Trans-
portation Committee to discuss automotive fuel efficiency with a focus on tech-
nology.
The environmental challenge is one that Honda has long embraced. Honda prod-
ucts have always focused on the most efficient use of resources. It has been a part
of Hondas culture from the beginning. To quote our founder, Mr. Honda, in 1974,
I cannot overstress the importance of continuing to cope with the pollution prob-
lem. We believe that we must think about more than just the products we make.
We think about the people who use them and the world in which we live. We believe
that it is our responsibility, as a manufacturer of these products, to do all we can
to reduce the pollutants that are created from the use of products that we produce.
Conventional Technology
There is a popular misconception that vehicle manufacturers have not introduced
fuel efficient technology since the mid-80s. This is understandable, as the car and
light truck CAFE have remained constant for the last 15 years (and the combined
83
fleet has gone down due to increasing light truck market penetration), as shown in
Figure 1. However, there has been a substantial amount of efficiency technology in-
troduced in this time period. Some examples for the entire car and light truck fleet
from EPAs 2000 Fuel Economy Trends are shown in Figure 2.
Figure 1
Figure 2
710germ2.eps
710germ1.eps
84
However, this new technology has been employed more to respond to vehicle at-
tributes demanded by the marketplace than to increase fuel economy. Over the past
two decades consumers have insisted on such features as enhanced performance,
luxury, utility, and safety, without decreasing fuel economy. Figure 3 shows the
changes in vehicle weight, performance, and proportion of automatic transmissions
since 1980 in the passenger car fleet. Even though weight increased by 12% from
1987 to 2000, the 060 time decreased by 22% from 1981 to 2000. This is because
average horsepower increased by over 70% from 1982 (99 hp) to 2000 (170 hp). In
addition, the proportion of manual transmissions, which are much more fuel effi-
cient than automatic transmissions, decreased from 32% in 1980 to 14% in 2000.
Figure 3
It is clear that technology has been used for vehicle attributes which consumers
have demanded or value more highly than fuel economy. Figure 4 compares the ac-
tual fuel economy for cars to what the fuel economy would have been if the tech-
nology were used solely for fuel economy instead of performance and other at-
tributes. If the current car fleet were still at 1981 performance, weight, and trans-
mission levels, the passenger car CAFE would be almost 36 mpg instead of the cur-
rent level of 28.1 mpg. The trend is particularly pronounced since 1987. From 1987
to 2000, technology has gone into the fleet at a rate that could have improved fuel
economy by about 1.5% per year, if it had not gone to other attributes demanded
by the marketplace.
710germ3.eps
85
Figure 4
There is no reason why this technology trend of improved efficiency (as opposed
to fuel economy) should not continue. Many of the technologies in the 2000 fleet,
such as 4-valve per cylinder, have not yet spread throughout the entire fleet (al-
though Honda vehicles have been virtually 100% 4-valve per cylinder since 1988).
In addition, several new technologies that will have significant efficiency benefits
are just beginning to penetrate the fleet. One technology pioneered by Honda is
variable valve timing. While Honda used variable valve timing in almost 60% of our
2000 vehicles, penetration in the other manufacturers fleets is only a percent or
two. Other technologies that have recently been introduced or for which at least one
manufacturer has announced plans to introduce include:
Direct injection gasoline engines (only announced for Europe and Japan to date)
5-speed automatic and 6-speed manual transmissions
Continuously variable transmissions (works like an automatic, but more effi-
cient)
Lightweight materials
Low rolling resistance tires
Improved aerodynamics
Cylinder cut-off during light-load operation (for example, an 8-cylinder engine
shuts off 4 cylinders during cruise conditions)
Idle-off (the engine stops at idle)
Technologies are continuously being incorporated into vehicles. However, con-
sumers sense of value usually puts fuel efficiency near the bottom of their list. The
dilemma facing manufacturers is that customers may not value putting in these
technologies just to improve fuel economy.
710germ4.eps
86
Gasoline-Electric Hybrids
The competitive technologies that I have just described will be integrated in vehi-
cle fleets in the relative near term. The most promising technology on the mid-term
horizon (515 years) are hybrid vehiclesvehicles which employ two power sources.
The two hybrid vehicles recently introduced in the US, the Honda Insight and the
Toyota Prius, both use innovative hybrid techniques. There are some basic operating
characteristics that help shape the design of any hybrid system. The greatest de-
mands on horsepower and torque occur while accelerating and climbing grades.
Minimal power is needed to maintain a vehicles speed while cruising on a level
road. By using an electric motor to provide a power boost to the engine when appro-
priate, a smaller, more fuel-efficient gasoline engine can be used. In addition, the
motor can be used to capture energy that would normally be lost during deceleration
and braking and use this energy to recharge the battery. This process is referred
to as regenerative braking. These vehicles do not need to be plugged in. Finally,
the powerful electric motor can restart the engine far quicker than a conventional
starter motor and with minimal emission impact, allowing the engine to be shut off
at idle.
Hondas Integrated Motor Assist (IMA) relies primarily on a small gasoline motor
and is supplemented by a high torque, high efficiency DC brushless motor located
between the engine and the transmission.1 This 10 kW motor is only 60 mm (2.4)
thick and is connected directly to the engines crankshaft. It supplies up to 36 ft-
lb. of torque during acceleration and acts as a generator during deceleration to re-
charge the battery pack. This is a simple, elegant method to package a parallel hy-
brid system and minimizes the weight increase.
1 Development of Integrated Motor Assist Hybrid System, K. Aoki et al, Honda, June, 2000,
SAE paper # 2000012059.
710germ5.eps
87
Toyotas hybrid system combines both series and parallel systems.2 The Prius
powertrain is based on the parallel type. However, to optimize the engines oper-
ation point, it allows series-like operation with a separate generator.
Both models use relatively small battery packs. The Insights NiMH battery pack
is rated at about 1 kW-hr of storage and only weighs about 22 kg (48 pounds). The
battery pack on the Prius is larger, but is still no more than twice the size of the
Insights. These lightweight battery packs help to maintain in-use performance and
efficiency while maintaining most of the hybrid system benefits. The larger motor
and battery on the Prius also allow limited acceleration and cruise at light loads
on electricity only.
Both the Insight and the Prius incorporate substantial engine efficiency improve-
ments, in addition to the downsizing allowed by the hybrid system. The Prius uses
a low friction, Atkinson cycle 1.5L engine. The Atkinson cycle uses a longer expan-
sion stroke to extract more energy from the combustion process to boost efficiency.
The Insight engine incorporates a number of different strategies to improve effi-
ciency. The engine has Hondas variable valve technology, which boosts peak horse-
power and allows even more engine downsizing. The 1.0L, 3-cylinder engine also in-
corporates lean-burn operation, low friction, and lightweight technologies to maxi-
mize fuel efficiency. Despite the small engine size, the Insight can sustain good per-
formance with a depleted battery, due to the high power/weight from the VTEC en-
gine.
What is especially interesting about the Insight and Prius comparison is that very
different powertrain technologies were used to achieve similar efficiency goals. One
important lesson is that the different types of hybrid systems have reasonably simi-
lar environmental performance. The new continuously variable transmission (CVT)
Insight is rated as a SULEV. There are an infinite number of ways to combine hy-
brid components to create a practical hybrid electric vehicle.
Both the Insight and the Prius have achieved impressive fuel economy improve-
ments. The manual transmission Insight has the highest fuel economy label values
2 Prius information is based upon October, 1999 Presentation by Dave Hermance of Toyota,
Toyota Hybrid System Concept and Technologies.
710germ6.eps
88
ever for a gasoline vehicle, 61 mpg city and 68 highway. The CVT Insight is rated
at a slightly lower level. While much of the high fuel efficiency is attributable to
the hybrid engine, other fuel efficient technologies, such as aerodynamic design and
strategic use of lightweight materials were incorporated into the Insight as well.
The Prius values are 52 mpg city and 45 highway.
Projections have also been made for prototype or future hybrid designs. Table 1
compares the manufacturer claims for the prototype vehicles to the production val-
ues for the Insight and Prius. It should be noted that Table 1 presents CAFE val-
ues, instead of fuel economy label values.3
Table 1: Hybrid Vehicle Comparison

CAFE mpg % improvement **
Commercial Honda Insight 76 91%
Commercial Toyota Prius 58 50%
Prototype Ford Escape SUV 40 4070%
Prototype Dodge Durango SUV 19 20%
Prototype GM SUV 35 20%
Prototype GM full-size pickup 20 15%
Prototype Ford ProdigyPNGV diesel 70* 155%
Prototype DC ESX3PNGV diesel 72* 162%
Prototype GM PreceptPNGV diesel 80* 191%

* Gasoline-equivalent mpg.
** Baseline for Escape is 24 mpg (V6) to 29 mpg (4-cyl).
Baseline for PNGV is 28 mpg (based on typical midsize car).
While it is easy to overlook because of the large efficiency benefits, hybrids also
offer some potential emission reductions. The lower fuel consumption directly re-
duces upstream emissions from gasoline production and distribution. If the higher
efficiency is used to increase range, evaporative emissions from refueling are re-
duced.
Future potential for hybrid powerplant applications and volume sales
Hybrids have a number of positive features that are desired by customers. They
use gasoline (or diesel fuel); thus there are no concerns about creating a new infra-
structure to support fueling. The customer benefits from lower fuel costs, extended
range, and fewer trips to the gas station. Hybrids have good synergy with other fuel
economy technologies and even help reduce emissions. Equally important, there is
little impact on how the vehicle operates. The vehicles drive and operate similar to
conventional vehicles.
Recent announcements from a number of manufacturers indicate that hybrid sys-
tems are being considered across a very broad vehicle spectrum. Toyota has an-
nounced production of a hybrid electric minivan for the Japanese market.4 Honda
recently announced a hybrid version of the Civic 4-door sedan that will be sold in
the US beginning in spring 2002. Ford has announced plans to put a hybrid system
into a 2003 model year Escape, a small SUV.5 DaimlerChrysler will offer a hybrid
in its Durango SUV sometime in 2003.6 General Motors is already selling hybrid
bus systems and plans to sell hybrid versions of its full-size pickup truck and the
forthcoming Saturn VUE SUV in 2004.7 There appears to be no inherent limitation
3 EPA discounts the city test by 10% and the highway by 22% when calculating fuel economy
values, so the combined FE based upon the label values discussed in the last paragraph is about
15% lower than the CAFE values in Table 1.
4 Toyota sees a hybrid future, Autoweek, October 30, 2000
5 Ford Motor Co. press releases, January 10, 2000 and April 7, 2000
6 Associated Press article by Justin Hyde, October 25, 2000
7 General Motors Co. press release, January 9, 2001
89
on the use of hybrid systems, as long as packaging, weight, and cost issues can be
managed.
While there have been tremendous strides in hybrid technology, there remain
some packaging issues such as finding space for the motor, battery pack, and power
electronics, as well as some additional weight. However, these issues are secondary
compared to the cost issue.
Unfortunately, hybrid systems are not cheap. Manufacturers are understandably
reluctant to discuss the cost of their hybrid systems, so it is difficult to determine
a realistic cost. Initially, hybrids also have high development costs spread over rel-
atively low sales. DaimlerChrysler has said the hybrid Durango will cost about
$3000 more than the standard model.8 Peugeot-Citroen recently stated that they
. . . have set a target of making the cost of stepping up to hybrid power no greater
than the amount motorists are now prepared to pay for the switch from petrol to
diesel. 9 Ford stated that the hybrid is expected to add about $3000 to the price
of the Escape,10 although it should be noted that a Ford engineer recently stated
that the $3000 price increment will not cover all of their costs.11
To put the cost issue into context, lets take a look at what customers might be
willing to pay in exchange for the fuel savings, both in the US and overseas. To do
this, we need to make a few assumptions. The most critical is customer discounting
of fuel savings. It is generally understood that most customers in the US only con-
sider the first four years of fuel savings, plus they heavily discount even these four
years. This is roughly equivalent to assuming that customers only value the fuel
savings from the first 50,000 miles. For lack of information, the same 50,000 mile
assumption is used for overseas customers (who drive less per year but may value
the fuel savings more).
Estimates were made for three different size vehicles, small cars, midsize cars,
and large trucks. Three estimates were also made for the hybrid benefits, as the
improvements listed in Table 2 range from 15% to 196%. Of course, most of the ve-
hicles in Table 1 include factors that go well beyond the impact of the hybrid system
itself, such as weight and load reduction, engine efficiency improvements, and
dieselization. A reasonable factor for just the hybrid system and corresponding en-
gine size reduction is probably about 3040% over combined cycles. Sensitivity cases
of 20% (for very mild hybrids) and 80% (for hybrids combined with moderate engine
and load improvements) are also shown in Table 2.
The final factor is fuel cost. Table 2 lists two cases: $1.50/gallon (US) and $4.00/
gallon (Europe and Japan). The formula used to calculate the fuel savings in Table
2 is:
Table 2: Customer Value of Hybrid Fuel Savings (savings for the first 50,000 miles)
Small car Midsize car Large truck
FE increase Fuel cost
40 mpg 27 mpg 16 mpg
20% $1.50/gal $313 $463 $781
$4.00/gal $833 $1,235 $2,083

40% $1.50/gal $536 $794 $1,339
$4.00/gal $1,429 $2,116 $3,571
80% $1.50/gal $833 $1,235 $2,083
$4.00/gal $2,222 $3,292 $5,556
8 Associated Press article by Justin Hyde, October 25, 2000

9 Parallel hybrid project director Emmanuel Combes of PSA in August, 2000 issue of Global
Automotive Network.
10 Ford Motor Co. press release, January 10, 2000
11 Ford Escape Chief Engineer, comments during May 18, 2001 edition of PBS Science Friday
710germ7.eps
90
The results are sobering. From a societal view, the fuel savings over the full life
of the vehicle (which are about three times the values in Table 2), would likely jus-
tify the approximately $3000 cost of hybrid systems. However, the typical customer
would not make up the incremental cost of $3000 by the fuel savings, especially in
the US. In Japan and Europe, there may be a substantial market for hybrids even
at a cost of $3000, due to the higher fuel prices. If the hybrid cost could be reduced
to $1500 or $2000, the majority of customers in Japan and Europe might be willing
to purchase a hybrid vehicle.
Even in the US, there are customers who, because they drive a lot or value the
benefits more highly, will be willing to pay a $3000 premium for a hybrid vehicle.
However, it is clear that hybrids will not break into the mainstream market in the
US unless the cost of hybrid systems comes down and/or some sort of market assist-
ance or incentive program is adopted.
Over the next five to ten years, we are likely to see a gradual increase in hybrid
sales in the US. While the approximately $3000 cost increment in 2003 is too high
for the mass market in the US, enough customers will desire the features to keep
the market growing. In addition, hybrid sales are likely to increase much faster in
Europe and Japan, due to their much higher fuel costs. This will lead to higher vol-
ume production and further development, both of which will reduce cost worldwide.
Sales in the US will continue to increase as the costs come down.
But there is a broader message here for US policymakers. All of the technology
improvements that can be made are incremental and have a financial cost. Absent
marketplace signals as well, progress on achieving higher fuel efficiency in the mar-
ketplace may be slower than we may desire.
Fuel Cells
Fuel cells are the most promising mid- to long-term option. Hydrogen fuel cells
have virtually no emissions and are extremely efficient. Large-scale production of
hydrogen would probably use natural gas, which would reduce our dependence on
fossil fuels. Even longer term, we may be able to produce hydrogen using solar en-
ergy or biomass fuels.
However, there remain a lot of issues to resolve before fuel cell vehicles become
commercially viable. Cost and size must be drastically reduced and on-board hydro-
gen storage density must be significantly improved. Durability must also be proved.
Even after all these problems are solved, there are still infrastructure issues for
fueling systems to resolve. Thus, fuel cells will be a long time in development.
There also are some serious concerns about on-board reformers for creating hydro-
gen. Reformers are the hardware that converts fuel like natural gas or methane, to
hydrogen. These reformers are expensive, take up valuable space in the vehicle, and
are slow to warm up and respond to transient driving conditions. In addition, they
reduce the efficiency of the vehicle, both because of the energy needed for the re-
forming process and because the resulting fuel stream is not pure hydrogen. The
dilution of the fuel stream requires a larger fuel cell stack to maintain the same
performance, increasing weight, size, and cost of the system. In fact, recent research
has concluded that fuel cells with on-board reformers may not be more efficient than
a good gasoline hybrid.12
Hondas current research efforts are focused on direct hydrogen fuel cell vehicles.
These are not yet ready for the public, not ready for numbers, not ready to help
fill requirements for zero emission vehicles. There is much work to be doneour
focus is to see if we can stimulate progress on R&D for hydrogen production ideas
and toward infrastructure concepts and development. But even if all of the techno-
logical and infrastructure obstacles can be overcome, we are still one to two decades
away from serious commercial introduction. However Honda is serious about this
technology because it holds promise for environmentally sound transportation.
Electric Vehicles
While we are optimistic about the prospects of fuel cell vehicles, our experience
with battery electric cars must serve as a warning. A decade ago, we all thought
battery electric vehicles were the wave of the future. They promised emission-free,
potentially renewable mobility with the performance of conventional internal com-
bustion engines. So confident was California in the technology that the state re-
quired all major manufacturers to sell battery electric vehicles for 10% of their Cali-
fornia sales.
Unfortunately, the battery technology did not evolve as we all had hoped or ex-
pected. Todays batterieseven the most sophisticatedare heavy, expensive (tens
12 On the Road in 2020, M. Weiss, J. Heywood, E. Drake, A. Schafer, and F. AuYeung, Mas-
sachusetts Institute of Technology, October 2000.
91
of thousands of dollars per vehicle at production levels), have poor capacity (100
miles at best) and take 3 to 8 hours to charge. Moreover, there is nothing on the
horizon that will make these vehicles acceptable in the marketplace. While Cali-
fornia stubbornly clings to the hope that battery EVs will evolve (although it will
now require these vehicles to constitute 2% of sales) they simply will not meet our
expectations as an alternative to the internal combustion engine. I offer this experi-
ence as a caution that policymakers cannot get too far ahead of the technology.
Sometimes what we expect simply does not occur.
But there is also another lesson to be learned from our experience with electric
vehicles. Market-forcing regulation should remain technologically neutral. Califor-
nias zero emission vehicle mandate essentially requires manufacturers to sell elec-
tric vehiclesvehicles which very few consumers will want. In response to the Cali-
fornia mandate, there will be a flood of golf cart type electric vehicles hitting the
California marketwhich technically comply with the mandate but whose real con-
tribution to air quality will be very mild at best. If there is to be regulation, it
should be in the form of realistic performance standards which leave to the inge-
nuity of industry the opportunity to explore, develop or market technologies that are
practical, perform as required and are economical.
Customer Preference
Honda believes it has a duty to be a responsible member of society and to help
preserve the global environment. Honda is committed to contributing to mitigation
of greenhouse gas emissions through technological progress. We believe it is our re-
sponsibility to develop and offer efficient products in the market. We have been an
industry leader in introducing such products and will continue to do so.
However, unless the customer becomes an integral participant in the process of

reducing greenhouse gases, market acceptance of these products will be limited. Pro-
grams will be far more effective if they include government and customers, not just
industry. The industry can provide a pull by providing products desired by the
consumer. But, we cannot push customers into buying vehicles they do not want.
Government programs to stimulate demand, provide incentives, and educate the
customer could dramatically affect acceptance of new technologies and market pene-
tration.
Thank you for this opportunity to testify. I would be pleased answer any questions
you may have.
Senator KERRY. Thank you very much, Mr. German. It is very in-
teresting, and we do want to come back to a number of those
things.
710germ8.eps
92
Mr. Miller, picking up on what Dr. Kammen said about the mar-
ket, that you have to create the market balance, et cetera, here you
are. The fuel cells work in a limited fashion. We know that you
have small power generation capacity. Is there an expectation that
this could become a source of larger power capacity?
Mr. MILLER. Mr. Chairman, we definitely think that is true. The
one thing that is preventing that from becoming more ubiquitous,
lets say, in the economy is the cost. Our cost today is $4,500 a kilo-
watt. Our new technology, which will be out in less than 2 years,
is one-tenth the size and one-tenth the weight of the current tech-
nology, and we think we can dramatically reduce the cost and
make it economical for more people to buy these for home use, for
building use, ultimately for automobile use. It would certainly
helpwe have been helped historically by government incentives,
and certainly future government incentives would help from the
standpoint of increasing volume and therefore driving down costs
even faster.
Senator KERRY. Which is the bigger problem as a restraint on
your penetration of the marketplace? Is it the cost, or is it the tech-
nological problem?
Mr. MILLER. I would say it is cost, because today we have fuel
cells that will operate 5 years continuously. They get extremely
good efficiency. In other words, they convert most of the energy and
the natural gas into electricity or usable heat. And so our fuel cells
today are very reliable.
Senator KERRY. So you are saying your cost is $4,500 a kilowatt.
Mr. MILLER. Right.
Senator KERRY. The kilowatt, competitive cost is what? About
$1,000?
Mr. MILLER. $1,000 to $1,500, we start getting into being eco-
nomical, and that is why this new type of fuel cell, which is one-
tenth the size and weight, gives us the promise that within 24
months, we will be down to that $1,500 kilowatt level.
Senator KERRY. And begin to become competitive.
Mr. MILLER. Begin to become competitive.
Senator KERRY. Now, how does that compare to what Mr. Ger-
man was talking about in terms of the fuel for the automobile
itself? Is that the same?
Mr. MILLER. OK. A carto become economical in a car, we are
going to have to get down to $50 a kilowatt. Now, that seems like
a long way, but I would tell you that there are probably six or
seven auto makers, spending in excess of $100 million a year on
fuel cell vehicles, because they think that that can be accomplished
over time. Now, we see that occurring toward the end of this dec-
ade, but as was indicated earlier, it may be a little longer, it might
be a little sooner.
Senator KERRY. Now, what do you think we either could or
should doand if the two mix, terrificto facilitate the kind of
market pull that Dr. Kammen was talking about?
Mr. MILLER. Well, there are bills in Congress today, co-sponsored
by a number of members of your Committee, to give fuel cell tax
credits for residential and stationary fuel cells starting next year.
That would be an initial one.
93
The second issue which I think is important is that buses are one
of the main pollutants in inner cities, and they also obviously emit
tremendous amounts of carbon dioxide. Buses may be the first
transportation market which comes about, because whereas with
cars, you have the whole infrastructure to change, buses come
home every night, and if you put a hydrogen fueling station at
those few bus terminals, you could have hydrogen fuel cell buses
in the 2005 timeframe.
And what we have been recommending from a government
standpoint is a program to test fuel cell buses and to prove to tran-
sit agencies that they are reliable. And there have been a number
of
Senator KERRY. What is the resistance to that?
Mr. MILLER. Transit bus companies, their No. 1 criteria is reli-
ability, and they are very reluctant to try a new technology until
it has been proven out. And so that is why we need a couple of pro-
grams in a couple of cities to show them that fuel cell vehicles are
just as reliable as diesel and gasoline buses, and they have the
added advantage they are much more fuel-efficient. They will get
many times
Senator KERRY. So you could provide a fleet of those how quick-
ly?
Mr. MILLER. Well, we have buses right now. We have one that
will enter commercial service in Turin, Italy, this year. We are
partnered with Iris bus, which is basically Fiat over there, to dem-
onstrate a vehicle in commercial service over
Senator KERRY. One vehicle.
Mr. MILLER. Pardon?
Senator KERRY. One vehicle.
Mr. MILLER. A large transit bus. We are also working with Thor
Industries, which is a U.S. company, and we will have one fuel cell
bus on the road also beginning next year.
Senator KERRY. If we were to create a pilot program that tried
to designate a specific community, either for school buses or for
transit buses, how fast could the supply of buses be made avail-
able?
Mr. MILLER. We could have thoseI think we could have buses
available for a demonstration program like that by the end of next
year.
Senator KERRY. And what we are talking about is a vehicle
which has literally zero emissions, zero, no NOX
Mr. MILLER. Fueled by hydrogen
Senator KERRY.no SOX, fueled by hydrogen. Hydrogen, inciden-
tally, is it not about 80 percent of the matter here on Earth?
Mr. MILLER. I am not sure of the exact percentage, but obviously
water, you know, hashydrogen as the main
Senator KERRY. So it is ample in terms of supply and potential;
plus, you can create it.
Mr. MILLER. Yes. We can also reform hydrocarbons which sepa-
rate the hydrogen atoms from the carbon atoms and actually
produce hydrogen that way. That is what we do with our natural
gas PC25s today.
94
Senator KERRY. Now, Dr. Kammen, pick up on that. What do you

think we should and could do that would have a positive impact
in helping to expand the market?
Dr. KAMMEN. Well, certainly. I mean, the key lesson that the
more product turnover cycles you get, the better. The more genera-
tions of vehicles you build, the more efficient they get, the lower
the cost comes down.
A couple of things one could do right off
Senator KERRY. But how do we get to the point where
Dr. KAMMEN. Right.
Senator KERRY. Mr. German referred to the consumer here. The
consumer wants that acceleration, zero to 60, wants the comfort
I mean, there are certain things that the marketplace is automati-
cally responding to. Now, in Europe, the prices of fuel are higher,
so you have had a marketplace response as a consequence. Nobody
here in the Congress is going to advocate a higher fuel price, so
how do we deal with this in those circumstances?
Dr. KAMMEN. Well, it is interesting. I mean, Mr. German men-
tioned the degree that we have seen vehicles improve quite a bit,
but a lot has gone into performance, not into efficiency. If we (a)
close the SUV loophole standard on the CAFE standard and if we
raise the overall CAFE standards, those would send a strong signal
to companies that some of that R&D effort should go back into
these more efficient vehicles that would get the costs down.
We could also institute tax credits for hybrid vehicles, for fuel
cell vehicles, and those would have an important effect, because
those would tell companies
Senator KERRY. We actually have a bill. Senator Rockefeller and
I and others are hoping we could actually pass that here.
Dr. KAMMEN. That is what I am hoping as well, and that really
does set the clear standard for industry, that it is an area worth
investing in, because the market is going to be there for a while.
That is what I mentioned before, that building markets for these
clean technologies is a critical thing. In the past, markets have
come and gone, and there has been individual programs, but set-
ting standards like the CAFE is one way to really focus that effort
on those technologies.
Senator KERRY. Mr. Miller, what would have the greatest impact,
the fastest impact on you, beyond the pilot project here? If we
wanted to accelerate the creation of a vehicle that has no emis-
sions, how could we do that as rapidly as possible?
Mr. MILLER. Well, I think the tax credit bill which you referred
to is an important part of that, but I would also say once again the
fuel cell cost target is very low for transportation, and what would
help the industry drive down the cost is to start also working the
stationary fuel cell supports and incentives, because that is the
first initial application. We think for stationary you will see fuel
cells in buildings and homes in 2003. So if we can increase the de-
mand for those products, that will drive the cost curve down and
help us get toward that $50 a kilowatt number that we need to
achieve to be competitive with the internal combustion engine.
Senator KERRY. Now, each of you heard the discussion with the
first panel where we were talking about the requirements to try to
reduce our net emissions. It is obvious, is it not, that if this country
95
rapidly began to adopt the technologies you have talked about, you
could have a fairly painless movement very rapidly to a more re-
sponsible position, would you not?
Mr. MILLER. I would agree.
Dr. KAMMEN. I certainly agree. And, in fact, the issue, I think,
is really delay, because the longer we wait, the harder it is for com-
panies to make those changes, and the earlier that we put in
standards like more efficient vehicles, like carbon targets, those are
the ways to really get companies to make those investments in this
area, and those have paid off. We have seen companies consistently
making money by investing in clean technologies, despite a lot of
earlier rhetoric that these energy-efficient technologies are, in fact,
costly. They are, in fact, not.
The more we invest in them, like with compact fluorescent light-
ing, the Federal program, the green lights program, paid dramatic
dividends back and transformed the lighting of the country, and
those kinds of programs have a big effect.
Mr. DUFFY. Senator, I would also concur, and I would like to ref-
erence an example as to how quickly markets will respond to the
right incentives, and that is the renewable portfolio standard, or
RPS as it was referred to earlier, that was established by Texas
several years ago, and in many respects, it is the national model
for people who want to see the competitive development of renew-
able fuel.
Texas had an RPS requirement for 2,000 new megawatts of re-
newable energy generation to be in service by the year 2009. One-
half of that amount, 1,000 megawatts, will be met by wind genera-
tion that will be placed in service by the end of this year, so the
technology is ready, and with the right market incentives, the in-
dustry will respond.
Ms. KOETZ. Senator, if I may, there is another aspect to all of
this market penetration that I think might be useful. Most of the
technologies you see here sitting at the table are almost zero-emit-
ting. The problem is that none of our systems for accounting for
emissions take into account a zero emitter. If you never make the
emissions to begin with, you never get on the books; you are never
part of a static baseline forthat is measured, that somebody
wants to measure reductions off of, so you essentially wind up in
a category that has now become known as anyway tons. You were
sort of going to do that anyway, and in many respects, being zero-
emitting is thought of as just almost an accident of design rather
than as a positive public output.
So if there is one other thingand that also translates into some
of the numbers you are hearing here. 1,000 to $1,500 a kilowatt is
the price for combustion fuels, and those combustion fuels do not
have to make the additional investment it takes to go all the way
to zero-emitting. So we are aiming for targets that dont include the
cost of getting this additional public value that we say we want to
get.
Senator KERRY. And obviously that needs to be reflected in the
equation. I understand. I agree with you.
It is also part of what we need to do as we cost out these issues.
Whenever we are thrown the costs of doing something in the eco-
nomic analysis, we are always given a cost that is very one-sided.
96
We never have the costs factored in for the cleanup, for the dam-
age, for the disease, for all the other negative sides. We often dont
weigh that balance. Dr. Kammen, that is why you are saying there
is a $45 billion upside. Am I correct?
Dr. KAMMEN. It is even more than that. I mean, that is the direct
upside. If you instituted these energy efficiency and lower cost
fuels, you get that, but you also get an economic stimulus, because
that fossil fuel cost is essentially like the national debt. That is
money we are paying and not getting something out of. If we invest
in these clean technologies, we generate new markets. We then see
an additional effect on the market.
And what is interesting is that is now a very robust result. As
I said in the testimony, there is national lab studies. Our research
group at Berkeley has seen some of that. There are independent
groups who have all, coming along, seen different programs that
they would support, that overall the more investment in energy ef-
ficiency and renewables that we see, the better economic stimulus
we see. So it is having the exact opposite effect as the detractors
have been claiming for many years.
Senator KERRY. Let me document that by saying that in 1980,
the end of the Carter administration, after the initial investments
of the 1970s in response to the 1973 crisis, we were the worlds
leader in photovoltaics and renewables. We started the Energy In-
stitute in Colorado. Tenured professors left positions to go out there
and help feed this engine, and then the Reagan administration
came in, didnt believe in that kind of market support or interven-
tion, and completely gutted the program. We lost the lead in both
technologies to Germany and Japan, if I am correct, and not to
mention, discarded our leadership overall in that field.
So the consequences are enormous in these fields when you make
these choices. In Massachusetts during that same timeframe, the
fastest growing sector of the Massachusetts economy, notwith-
standing our extraordinary presence in education, in health care,
in financial services, in defense technology, in bio technology, and
other technologies, the fastest growing sector of the Massachusetts
economy was environment companies that were growing as a con-
sequence of those incentives that were created, and we had a job
base going from 50,000 up to about 75,000 people.
The brakes were put on, as several of you mentioned earlier, and
progress kind of ground to a halt because we werent consistent
and sustained in our commitment. I believe too much is being
made of the difficulties of this transition personally. We are the
worlds greatest technological leader and creator on the planet. If
we would unleash our technological capacity to pursue some of
these things, the market responds: Build it and they will come.
If we will do this, we can quickly lower the current dependencies
that we are all so concerned about.
Now, I am not going to say it is going to happen overnight. Obvi-
ously, I understand the difficulties. There are regulatory issues we
have to work through; there are liability issues that we have to
work through. I think many of us on our side of the aisle who have
been very supportive of some of those efforts need to be very
thoughtful about the changes and approaches we need to think
about in the context of the regulatory schemes. There are many of
97
these things that could get out there today that cant because of the
heavy-handedness of the regulatory process itself and other kinds
of issues, and I think we have to be really thoughtful about how
we come at that.
On the topic of wind energyand then I want to defer to Senator
Ensign who has been very patient. Mr. Duffy, how many countries
are using wind today as a major source of energy?
Mr. DUFFY. I am going to have to get back to you with a number
on that, Senator, but I think it is safe to say that throughout Eu-
rope, it is being relied upon as one of the primary new sources, as
new construction is being placed into service. And as I mentioned
before, the number from the AWEA study, $4 billion investment
last year. I mean, it iswe also see it aswe try to develop plants
in the United States. We see the impact of how well accepted and
proven it is in Europe by the backlog that is quickly building up
to get wind turbines in service within a reasonable period of time.
So globally there is no question it is one of the leading sources
and particularly one of the leading new sources. What we need to
do is just take the additional steps so we can expand that into this
country.
Senator KERRY. And just very quickly, Ms. Koetz, obviously nu-
clear is zero emission, and its record is stronger in many regards
than many people have acknowledged. On the other hand, there
are two very significant issues that still stand out there, and
maybe you would share with us what progress has been made and
what one might look forward to there. One is the waste issue, and
the other is the safety concerns that people have had. Do you just
want to comment quickly on both of those?
Ms. KOETZ. I will do that. Thank you, sir. First of all, I will go
to safety. We have had an ever-increasing safety record such that
we are one of the safest ways to produce power in the world right
now. In addition, we see a direct correlation between safety im-
provements and economic enhancement. We have many plants, as
I mentioned, making electricity for just over a penny a kilowatt.
Those are the same plants with the best safety records, so we do
not see any need to sacrifice safety or otherwise fail to live up to
our own imposed safety standards in order to get improved eco-
nomic performance, and we intend to see more plants going for-
ward on that correlation as well.
As to theand if you dont mind, I am going to call it the so-
called waste issue, sir, because one of the most important things
we deal with here in global climate change is dealing with our
greenhouse gas emissions as we approach sustainability.
And, frankly, we have always understood that our processed ura-
nium fuel stocks were reusable at some point in time. We also un-
derstood that this was valuable material that we needed to take
care of, so in many respects, although it has been labeled waste be-
cause of some of the policies we have pursued, in fact, this is a sec-
ondary raw material.
And before I get to the details of what we have been doing, I
think it is important to put it in context. We make about 40 million
tons of hazardous waste every year in the United States. We have
40,000 tons of used nuclear fuel from 50 years of making carbon-
98
free, sulfur-free, nitrogen-free electricity. That material would

cover roughly the size of football field to about 15 or 16 feet.
There is no denying that this is potentially dangerous material
that must be very effectively managed. However, the good news is
it has been very effectively managed. There are no Superfund sites
at commercial nuclear power plants. There are no RCRA corrective
actions going on commercial nuclear power plants. We have always
done the right thing with this material from the get-go. And be-
cause of that, we have not had any adverse environmental impacts
from this material. it has been what I would call the poster child
for effective waste management for the last 45 years.
We have had a program in place for the last decade or so to cre-
ate a centralized repository for this material. Unfortunately from
Mr. Ensigns standpoint, that is now in Nevada. This does replicate
what has been the systemic solid waste management programs fol-
lowed by the United States over the last several decades. You iden-
tify your hazardous waste at the end of a process. You secure it.
You package it, and you transport it to a centrally located facility
where it can be better managed than it would be in dispersed fa-
cilities.
We are tracking every other waste management program we
have. Unfortunately, this does create significant political issues,
and we understand that. At the same time
Senator KERRY. Fortunately for Mr. Ensign and for Nevada,
Harry Reid is in the majority, and it is not going to happen, so
Ms. KOETZ. Yes. Well, we understand that. But fortunately for
this country, the onsite facilities are doing such a good job man-
aging that material that if we either do not eventually use Yucca
Mountain or we come up with a different recycling technology, such
as separation and recycling technologies, which are under research
and development now. The best thing to do frankly for sustainable
development in many ways is to reuse this material more effec-
tively. We think that we must be very careful not to presume two
things. First, we cant assume that the current handling situation
is inadequate; it is really quite adequate for what we will need to
do to make decisions in policy space over the next several decades.
And, second, we cant assume static technological development in
this area. I mean, we are going to get better at using this material.
Senator KERRY. Well, thank you. That was an articulate answer,
and I appreciate it.
Senator Ensign.
Senator ENSIGN. Thank you, Mr. Chairman.
I want to followup on that line of questioning. And, Ms. Koetz,
I was actually excited about especially your last couple of com-
ments that you made, and I would like you to comment in general.
We now have Yucca Mountain out there that isI think originally
was supposed to cost somewhere around $15 billion, and now the
GAO, I think their latest cost estimate was $58 billion. And some
of the scientists think that it could go as high as $75 billion, which
by the way, would be the most expensive construction project in the
history of the world.
Senator KERRY. Puts the Big Dig to shame.
Ms. KOETZ. Maybe we could call it Big Dig II.
Senator KERRY. Please dont.
99
Senator ENSIGN. The bottom line, the reason I wanted to mention

the cost, because when you are mentioning kilowatt hours, Mr.
Kammen, when you were talking about taking total costs in, if you
figured a $60 billion cost to that, what does that take your kilowatt
hours to, when you putdo you have that figure?
Ms. KOETZ. I dont know if we have done that. Now, right now,
as most of you know, we are adding a mill to the price of nuclear
electricities, and that is being put in a fund. That fund is already
far in excess of what we anticipate being able to spend over the
next several decades. My estimation would be, to be honest with
you, Senator, that if we continue to pay the mill in, we would have
enough money to pay for the repository, even if it got to $60 billion.
I couldnt tell you that definitively.
Senator ENSIGN. I was going to say, that is not my under-
standing of what the GAOGAO, that was the purpose of their re-
port.
Ms. KOETZ. I apologize. I havent seen the report.
Senator ENSIGN. Their report basically was saying that the tax-
payer is going to end up holding the bag. The reason I bring that
up also is not just toyou know, I dont want to get into a tit for
tat on any of that. But if, as you said, the sites are handling it ade-
quately at this pointobviously we dont have some national crisis
with nuclear waste right now.
Dry cask storage, which a few of the sites are doing currently
and that is happening around the world as well. Dry cask storage,
I understand, you know, maybe is a $2 billion, maybe $3 billion
type ofwe dont have the transportation problems. We dont have
a lot of those types of things. If we went to something like dry cask
storage onsiteand I know the biggest problem that you have with
dry cask storage is not from your industrys point of view; it is the
states point of view, is getting the sites licensed for dry cask stor-
age.
But if the states would do thatand we are looking at a country-
wide policy, because I think that nuclear power is part of the an-
swer for the global warming and some of the things that we are
talking about in this hearing today. I just dont think it is part of
the solution if we dont deal with the economic problem.
But theif we go to onsite dry cask storage, which is far cheap-
er, doesnt that, in fact, make nuclear power more viable from an
economic standpoint and therefore help us in the future as far as
the environment is concerned?
Ms. KOETZ. Well, Senator Ensign, the first thing we would have
to do is examine whether it truly is cheaper, if you will, to have
dry cask storage at the facilities. Yes. You are correct in the actual
cost of putting the facilities up. But then we are put in the position
of having to maintain those separately funded facilities with proper
security and proper other costly items to maintain them very effec-
tively as a repository for this kind of material.
So in the long term, although the initial perhaps capital costs of
the facility would be a little bit less, from a long-term perspective,
it is not cost-effective to have separate facilities for this material,
no more than it would be cost-effective not to have a centralized
hazardous waste landfill under RCRA in a state or a locality where
you centrally moved your other hazardous byproducts that we
100
make all the time, just like you are not going to keep computers
which contain lead in various dispersed municipal landfills. We are
going to eventually have to consolidate them in well-run, centrally
located, secure facilities.
So I think you cant just look at an initial capital cost situation.
You have to have the much longer term costs in mind.
Senator ENSIGN. Well, and speaking of some of those longer term
costs, when we are looking at recycling technology, separation, re-
cycling, whether it is accelerated or transmutation accelerator tech-
nology or the reprocessing that several countries are doingI un-
derstand that Japan is building a new reprocessing plant, one of
the most modern in the world.
We are looking at those types of technology. I mean, we under-
standwe cannot separate politics from any of this, and transpor-
tation is one of the most difficult parts of any of this. And so if you
are looking at the total cost, we also have to look at political costs.
I just want the industry to keep in mind that because of transpor-
tation, if we can look at onsite dry cask storage as the alternative
right now, looking at the long-term future, because I believe that
recycling this waste is very, very important thing to do and looking
at new technologies. It seems to me that the overall benefits, if we
can do onsite dry cask storage, as we develop the technology, we
wont have to transport it, and then transport it again.
Ms. KOETZ. There is a very interesting climate change connection
to what you are saying. One of the things we want to do the most
for climate change, not just in this country but around the world,
is to engage in successful technology transfer. And interestingly
enough, nuclear, again, represents a 30- or 40-year history of very
successful technology transfer to the rest of the world, mostly in
the form of research reactors. And that research reactor fuel has
been coming back into this country and been transported to cen-
trally located places on government facilities in this particular in-
stance for years as well.
So I agree with you that while transportation is a difficult polit-
ical issue, it is also a successful transportation, scientific and cli-
mate change issue, because we have been transporting spent nu-
clear fuel around this country for decades now very, very safely. So
I agree with you. We try to take all of those costs, political and
technical, into account. But we also hopefully can take some of the
realities into account as well.
Senator ENSIGN. Mr. Chairman, could I ask a couple other ques-
tions to the other witnesses? Obviously this is kind of a big issue
to us, but I wasI had some other questions of the other wit-
nesses.
Mr. Kammen, you were talking about, you know, fossil fuels, and
one of the things you said about fossil fuels being subsidized, one
of the things you didnt mention is how we subsidize them mili-
tarily, and that is a fairly significant cost.
Dr. KAMMEN. I agree.
Senator ENSIGN. Yes, from the military standpoint. But I was
alsothere was something that you said about the Government not
choosing winners and losers, and I think that that is so important,
because we do get messed up. It seems historically what we have
learned is when we try to say that, Here is what you are going to
101
do, and therefore, these are the winners and losers, even when we
are trying to do something laudatory like clean up the environ-
ment.
I think a really good example is what California did with the
MTBE situation, and this is the technology you will use to clean
up the air, and, oh, yes, by the way, it does hurt the groundwater.
And I think that when we get into situations where we skew the
marketplace, we could end up with the most inefficient technology.
Could you just further comment on how we make the marketplace
determine the winners and losers, not Government and some, you
know, favorite senators program or whatever determine the mar-
ketplace.
Dr. KAMMEN. Right. That has been a real challenge, and par-
tially the subsidies that are already on board for existing tech-
nologies make it hard to open those new markets up. That has
been part of the story.
And the other one, as you say, there has been a number of pro-
grams in the past, syn fuels, clean coal. I would argue some of the
subsidies that went into nuclear, et cetera, have been ones that
were technology-specific, and that hasnt worked very well. I would
argue that we are now in a new era, in the sense that many of
these renewables are market-competitive or just on the edge right
now, and so we can actually use those market tools much more ef-
fectively.
The renewables portfolio standard is one that I think does ex-
actly that. It calls for a certain amount of renewable energy in the
mix, and it lets the market then look at those options. And the UK
has had an interesting experience with their non-fossil fuel obliga-
tion, the NFFO. Texas, as was mentioned, has had a very inter-
esting plan that is basically 8 years ahead of schedule.
Those types of programs where you say, We are going to set and
stick with a standard, whether it is an approved CAFE standard
and I, for example, support a quite highly increased one, 40 miles
a gallon over about a decadeor one with a certain fraction of
clean energy in the mix. Two percent, for example, next year is the
standard for RPS, which I would ramp up to 10 percent in the year
2010 to 20 percent in 2020.
Those set these clear targets and let the market then select tech-
nologies and dont make it a pork or a favorite technology program.
And that has been a very important way to do things, and that has
been a discovery the last 10 years of programs, a number of them
supported by Department of Energy, so I would agree.
Mr. GERMAN. I would just like to say that Honda also definitely
supports Senator Ensigns comments about not choosing winners
and losers. We are faced with a great example of that right now
with the California mandate and electric vehicles, which is a real
problem for us, so Honda is very supportive of performance require-
ments.
Senator ENSIGN. Mr. German, I actually hadjust to follow that
up with Hondas, I think, very impressive environmental record as
far as the type of vehicles that they build, but you mentioned be-
fore what Americans are choosing to drive, and I think that the dif-
ficulty in all of this is that when you are thinking aboutI know
certainly when I am thinking about my familyI have a wife and
102
three small children, and I want something big around them, and
it might smash another small car, but I know that they are going
to be safer in it.
[Laughter]
And, you know, I mean, everybody looks at these things kind of
selfishly. We have three small kids, and when you have three small
kids, you dont want a little car because of something called space,
and between small children on a trip, it is important.
But how do we getwhy doesnt Honda it seems to have built
and you mentioned some of the technologies and some of these
high-fuel vehicles or better gas mileage. If it is possible, why arent
the car manufacturers today, Honda and others, making the larger
SUVs that just have higher gas mileage? I mean, if we set asand
we close the loophole, is it possible to meet those standards and
still give Americans what they want? Is that possible? And if it is
possible, why arent we doing it now?
Mr. GERMAN. You can certainly close some of the loophole. Honda
is traditionally cautious about moving into new markets, and we
are behind most of the manufacturers on light trucks, but the re-
cent example is our Acura sport utility, the MPX, which is seven-
passenger. It has much more interior volume than a Ford Explorer.
It also gets much better fuel economy, because we have incor-
porated a lot of our fuel-efficient technologies into it.
Honda has a philosophy of being an environmentally conscious
company and being a technology leader, and we try to bake this
into all of our products. And I cant speak for the other manufac-
turers.
Senator ENSIGN. Mr. Kammen.
Dr. KAMMEN. An interesting feature on that point is that when
innovation is directed in these ways, you find that there are im-
pressive benefits. So, for example, over the last five or 6 years, we
have seen an increase in the number of different types of air bags,
side impact, a whole variety of features that have improved safety.
Now, it doesnt solve the problem of three kids and a long drive
issue, but it does do the safety things.
And so if you couple insay, we want to see more efficient vehi-
cles, but vehicles will sell better that are safer, those are the kinds
of signals that work together to meet the market-based targets that
you are saying, because I certainly think that we could see much
more innovation along these lines and convert more of that per-
cent-and-a-half increase in efficiency that Mr. German mentioned
into this area.
Mr. GERMAN. I mean, it is just a question of how much you want
to spend and the lead time involved.
Senator ENSIGN. Mr. Miller, just one last thing for you, as far as
the fuel cells. I think it is kind of interesting. I forget where I was
reading the article. I think it might have been Time magazine, and
they were talking about fuel cells, and they were using New York
Citythey were saying that fuel cells in the future may be the PC
answernot politically correct, but computer PCanswer to our
power problems, because one of the biggest problemsand we cer-
tainly face this in the Western United Statesis transmission.
Getting new transmission lines approved are incredibly difficult,
and this actually may be a place where, you know, a big part of
103
the cost in the future for power plants is going to have to be looked
as transmission lines, and if you can, in a local area, use at least
as far as a new part of the power gridcertainly California doesnt
want, you know, new power plants, new power lines, anything
being built. It would seem to me that they should be focusing on
technology like the fuel cells.
Mr. MILLER. Yes. I think that is a good analogy between main-
frame computers and large power generating stations, and PCs and
fuel cells. Fuel cells will be distributed power, at homes or in build-
ings, and will not need as much transmission capacity as presently
exists in the United States and around the world. I agree with
that.
Senator ENSIGN. And, Mr. Chairman, just my last comment on
this. I think it is interesting that we are hearing that new tech-
nology is a big part, it looks like, to our answers, and I certainly
believe it is to our answers, if we focus that new technology in the
right way, to our environmental concerns. But it is also funny that
if you look at every one of ouror almost every one of our states,
we tax cars, new cars, higher than we tax old cars, and yet new
cars produce less pollution.
There was an op ed in our paper today, and it was kind of an
interestingI had never really thought about that before, but we
penalize people for being more environmentally friendly today, and
maybe it is a policy that we need to look at in the future. Thank
you, Mr. Chairman.
Senator KERRY. I think that is a good observation, and I concur
completely. I think we learned a number of years ago about the
winner/losers issue. We dont want to pick them. We want to create
a framework within which people can make their own choices, and
capital will move thoughtfully and rapidly in a certain direction.
But which particular technology comes out of it, I think the mar-
ketplace can often make that decision itself better.
Mr. DUFFY. Senator, I would like to confirm that. Just by way
of example, we mentioned a major Massachusetts wind project we
are working on. We are doing that for the specific reason that Mas-
sachusetts has always, similar to Texas, adopted an RPS standard
where they have specific guidelines of percentages, ramping up to
10 percent, for which a number of renewable technologies would be
eligible. It could be solar; it could be hydro; it could be wind. We
are going forward on the basis of that structure, putting our capital
at risk. We know theres others out there, and it is up to the mar-
ket to see who is actually able to pull the projects off.
Senator KERRY. Absolutely. Obviously the competition is healthy,
and presumably there will be several different niches and tech-
nologies out there that are in the range, but I think it is helpful
for us to try to create the framework to attract that.
I am particularly grateful to all of you. Some of you traveled long
distances, and this is very helpful to the Committee. We are going
to leave the record open for colleagues who may want to submit
some questions in writing over the course of the next 10 days, and
I appreciate very much you taking time to be here.
We do have another panel, so I would like to switch panels, if
we can, as quick as possible.
[Pause.]
104
Senator KERRY. Dr. Sandor, you have a flight that you are going
to try to get to, and it is out of Dulles, so we are going to lead off
with you, and if we have any questions, we will focus in on them.
STATEMENT OF DR. RICHARD L. SANDOR, CHAIRMAN AND

CEO, ENVIRONMENTAL FINANCIAL PRODUCTS LLC
Dr. SANDOR. Thank you for the courtesy, Senator. It is a pleasure
to be here to talk about a subject which I think is very, very excit-
ing, and that is market-based solutions to environmental problems.
I am chairman of the board and CEO of a small company called
Environmental Financial Products, and a visiting scholar at North-
western University. We professionally design, develop and partici-
pate in new markets, and our experience has gone from financial
futures in the 1970s to insurance derivatives, hurricane index
bonds, earthquake bonds, climate derivatives, and most recently in
the SO2 program which, I know, Senator, you were a key figure in.
In the SO2 program, we think there is a model that serves very
well any inquiry into carbon and carbon trading. As you are well
aware, in the late 1980s people talked about $1,500 or $1,800 a ton
as the cost of abating SO2 emissions. As early as 1992, the median
levels were $600. At nine auctions at the Chicago Board of Trade
since its inception, the costs were roughly $130 a ton, 20 percent
of the forecasted levels.
I think we need to get into the practicalities and less talking and
more action to really inform the debate. If, in fact, the cost of re-
ducing global warming is very, very low, policy-makers need to
have that fact, and the best way to uncover this cost is through
practical experience.
We have been involved in carbon markets since Rio in 1992 at
Kyoto and The Hague and we are now talking about a pilot trading
program. A year and a half ago, we approached the Joyce Founda-
tion, which is a billion-dollar Midwest foundation to see if they
would fund the feasibility of developing a climate exchange within
the Midwest area (Wisconsin, Minnesota, Iowa, Illinois, Indiana,
Michigan, and Ohio).
We undertook that feasibility study. We looked at the size of that
particular region, which has roughly $2 trillion GDP. It would rank
as the fourth largest country in the world if it were separate entity.
It has a broad array of industry, agriculture, forestry, manufac-
turing, and energy industries.
The results suggest that there is, indeed, a possibility that we
could develop a market that had balance and included a wide vari-
ety of constituents and a voluntary cap which corporations would
take on and ultimately implement through trading. It would in-
clude carbon sequestration in agriculture and forestry, landfill gas,
wind, and other renewable energy.
At the end of the study, we formed an advisory group, and that
advisory group includes former members of the Senate, the House,
former governors, Republicans, Democrats, deans at Yale and
Northwestern, the former Undersecretary General of the U.N. who
was the lead organizer of the Rio summit. We have scientists, the
former mayor of Rio de Janeiro and a forestrysustainable forestry
expert. So we were advised by a lot of talented people.
105
We took it to the field about 3 months ago, and the critical test
was: Could you get companies to agree to a voluntary cap, and
could you get a broad enough constituency to build a consensus, to
develop a market, and could you buildup the monitoring protocols,
the verification, the registry.
We had a target, Senator, of five companies. We had hoped to get
a couple of utilities, some large agricultural producers, and a land-
fill gas operator who would help us with these protocols, enough to
get a mini-market. Well, we were dead wrong. We ended up with
33 major companies, eight utilities that constitute 20 percent of the
total emissions in the Midwest. They range from WEPCO and
Cinergy, Midwest Generation, Exelon, PG&E.
We found out the forestry companies were interested as well, in-
cluding International Paper, Mead, TempleInland. We also went
to some of the largest corporates in the region. BP, Ford, DuPont,
all have joined; Zapco, Waste Management, a wide variety of alter-
native energy sources, and heavy manufacturers. As a matter of
fact, the market capitalization of the companies that are helping us
in the design process and have joined the Chicago Climate Ex-
change is roughly $425 billion. So we have some serious interest.
In the farming sector, we have four farmer cooperatives, includ-
ing the Iowa Farm Bureau Federation, which has 80,000 members,
who farm 25 million acres, which is 85 percent of all of the farms
in the state of Iowa.
We are entering the second stage now. We think that there is
practicality in this. The companies have agreed to consider a pilot
stage emission reduction of 5 percent from 1999 levels, to be
phased in from 2002 to 2005. When we complete this market de-
sign study, we will begin implementation and trading.
Senator, in conclusion, there are a couple of things which I would
like to mention. We need some help at the legislative level. There
is a role for early reduction credits and for early action legislation.
We need some help with the registry. We need some help in moni-
toring and verification of soil carbon, and we need some research
in those areas. We think if that happens, we will move along.
And, finally, the carbon market is ongoing. Today we are privi-
leged to close a trade between Nuon, one of the largest utilities in
Europe, and a New Jersey electric utility for 300,000 tons of car-
bon, so we have actually been trading already in an over-the-
counter market.
Thank you very much.
[The prepared statement of Dr. Sandor follows:]
PREPARED STATEMENT OF DR. RICHARD L. SANDOR, CHAIRMAN AND CEO,

ENVIRONMENTAL FINANCIAL PRODUCTS LLC
Feasibility and Initial Architecture of a Voluntary Midwest Greenhouse

Gas Reduction and Trading Market
Context
The debate over appropriate actions to address the risks arising from changes in
the Earths climatethe greenhouse effectsuffers from two major information
gaps. The first is a lack of consensus regarding the damages that could occur to the
environment without action to reduce greenhouse gas (GHG) emissions. The sci-
entific process may not precisely predict the nature and implications of climate
changes that would occur if society does not make significant changes in energy and
106
land use patterns associated with higher levels of GHG emissions. That is, the costs
of inaction and the benefits of taking mitigation actions are uncertain.
The second information gap is lack of understanding of the monetary costs associ-
ated with undertaking mitigation to reduce greenhouse gasses. The absence of hard,
proven data on greenhouse gas mitigation costs reduces the quality of the climate
policy debate.
The nature of the implied cost-benefit analysis underlying the climate debate sug-
gests that for any particular level of benefits accruing from action to mitigate cli-
mate change, a high cost of mitigation will lead policy makers to take less action.
If mitigation costs are proven to be low, it appears policy makers would support
stronger action to address climate change. At this time, however, we lack the data
for realizing the costs involved in pursuing climate mitigation actions.
The ultimate objective of the proposed Chicago Climate Exchange is to generate
price information that provides a valid indication of the cost of mitigating green-
house gases. By closing the information gap on mitigation costs, society and policy-
makers will be far better prepared to identify and implement optimal policies for
managing the risks associated with climate change.
Overview and Methodology
This report presents a feasibility analysis and initial architecture for a voluntary
pilot greenhouse gas emissions trading program that would be launched in the Mid-
west and expanded over time. The objectives of the pilot programhereafter called
the Chicago Climate Exchange (CCX)are:
Proof of concept:
demonstrate the ability to cut and trade greenhouse gases in a market system
involving multiple industrial sectors, mitigation options and countries;
initiate greenhouse gas reductions through a modest size but scalable program;
form a basis of experience and learning for participants;
introduce a phased, efficient process for achieving additional GHG reductions in
the future.
Price discovery:
provide realistic information signaling the cost of mitigating greenhouse gases;
enhance the quality of climate policy decision-making by providing hard data
on mitigation costs to the public and policymakers.
The strategy used to assess the feasibility of a pilot GHG market relied on several
research methodologies. A theoretical economic assessment accompanied by quan-
tified data guided the structure of the study. The proposed market architecture was
influenced by lessons from other successful emissions, financial, and commodity
markets. The successful USEPA SO2 emissions trading program to reduce acid rain
served as a model for the design of key elements of the Chicago Climate Exchange.
The research is a continuing work in progress. The next step of the process is to
incorporate industry input to refine the initial proposed market terms and condi-
tions. This process will yield a working prototype for which an attempt to build a
consensus will be initiated. That consensus design would represent a functional ar-
chitecture for the first phase of a market. Implementing the proposed market design
and incorporating lessons from practical experience are core elements of the pro-
gram.
Market Architecture and Participants: Theory and Design
The negative effects caused by the release of greenhouse gases is currently not
priced. Consumers and businesses do not fully take account of such effects in their
economic decision-making because there is no price on the use of the atmosphere.
The goal of the proposed pilot greenhouse gas trading program is to establish the
market for discovering the price for reducing emissions. The core steps are to limit
overall consumption of the atmosphere (GHG emissions) and establish trading in in-
struments that allow participants to find the most cost-effective methods for staying
within a target emission limit. The market price of those instruments will represent
a value signal that should stimulate new and creative emission reduction strategies
and technologies. Emissions trading is a proven tool that works with and harnesses
the inventive capabilities of business.
Various market architecture design options were considered. A market could in-
clude emission limits taken by fossil fuel producers and processorsthe upstream
entities in the carbon emissions cycleor by major downstream sources that burn
fossil fuels, such as electric power generators, factories, and transport firms. An
107
intermediary level approach could focus on firms that produce energy consuming
devices, such as automobiles, or other intermediaries such as fuel distributors.
Based on responsiveness (the ability of participants to directly cut emissions), ad-
ministrative costs and existence of successful precedents, the recommended ap-
proach is a predominantly downstream approach. Accordingly, the research find-
ings suggest the CCX should aim to include participation by large emission sources
at the downstream level (e.g. power plants, refineries, factories, vehicle fleets).
In order to incorporate other mitigation projects that add to the flexibility of the
market (and which are gaining international recognition as valid projects), the pro-
posed design would also allow crediting for a range of offset projects that encourage
micro-level GHG mitigation actions.
Reflecting international consensus and successful precedent, the items to be trad-
ed in the pilot marketGHG emission allowances and offsetsare instruments rep-
resenting one ton of carbon dioxide (CO2) or their equivalent (CO2e). For every ton
of CO2 emitted, a participating emission source must relinquish one allowance or
offset.
Potential For A Market Initiated in the U.S. Midwest
The Midwest represents a microcosm of the U.S. The regions economy is as large
as the economies of the United Kingdom (U.K.) and the Netherlands combined and
has annual GHG emissions equal to those of the U.K. plus France (1.375 billion tons
CO2). The regions industrial diversityincluding a broad range of energy, heavy
manufacturing, transport, agriculture, pharmaceuticals, electronics and forestry
make it well-suited as a starting point for a robust and representative greenhouse
gas emissions trading market.
The feasibility analysis suggested a hypothetical target market covering 20% of
all Midwest emissions. The scale of such a market and the proposed GHG mitigation
goals are summarized in Table A. The Table portrays a proposed GHG reduction
schedule calling for emissions in the first year of a pilot market, 2002, to be 2%
below 1999 levels (the baseline year) and falling a further 1% each year from 2003
through 2005.
Table A. Scale of a Hypothetical Midwest GHG Market and

Mitigation During 20022005
(in million metric tons CO2 equivalent)
Estimated Midwest 1999 emissions 1,375
1999 emissions of a hypothetical 20% coverage market 275
Cumulative baseline emissions during 20022005 under

for the 20% coverage scenario 1,100
Cumulative 20022005 CCX emissions target for hypo-

thetical 20% coverage program (2% below 1999 levels
during 2002, 3% below 1999 in 2003, 4% below in
2004, 5% below in 2005) 1,061.5
Four-year Mitigation Demand (baseline emis-

sionstarget) 38.5 mil. tons CO2e
The hypothetical 20% coverage Midwest market appears to provide sufficient scale
for a pilot market that could be representative of a larger market. Total emissions
covered in such a market would equal the emissions of Scandinavia (Denmark, Fin-
land, Norway and Sweden) and would be more than double the emissions covered
in the successful internal GHG market operated by BP-Amoco. While broad coverage
is an ultimate goal, the main benefits of a pilotproof of concept and price dis-
coverycan be realized with a modest size but a diverse set of participants.
108
Proposed Market Architecture and Mechanics
Table B summarizes the core elements of the proposed market architecture.
Table B. Indicative Term Sheet

Market Architecture for the Chicago Climate Exchange
Geographic Coverage 2002: emission sources and projects in seven Midwest

states (IA, IL, IN, MI, MN, OH, WI), offsets accepted
from projects in Brazil;
20032005: emission sources and projects in U.S., Can-
ada and Mexico, offsets accepted from projects in
Brazil.
Greenhouse Gases Carbon dioxide, methane and all other targeted GHGs
Covered
Emission Reduction 2002: 2% below 1999 levels, falling 1% per year

Targets through 2005
Industries and Firms Primarily downstream participants: power plants, re-

Targeted fineries, factories, vehicle fleets; approximately 100
firms initially targeted; individual entities or operating
groups must produce over 250,000 tons CO2e to become
a participating emission source
Tradable Instruments Fully interchangeable emission allowances (original

issue) and offsets produced by targeted mitigation
projects
Eligible Offset Carbon sequestration in forests and domestic soils

Projects Renewable energy systems activated after 1998
Methane destruction in agriculture, landfills and
coalbeds
Offset projects must be over 100,000 tons CO2e;
smaller offset projects must aggregate reductions to
meet the requirement
Annual Public 2% of issued allowances withheld and auctioned in

Auctions spot and forward auctions, proceeds returned pro
rata
Central Registry Central database to record and transfer allowances and

offsets; interfaces with emissions database and trading
platform
Trading Mechanisms Standardized CCX Electronic Market, private con-

tracting
Trade Documentation Uniform documentation provided to facilitate trade
Accounting and Tax Accounting guidance suggested by generally accepted

Issues accounting principles; precedent exists for U.S. tax
treatment
Market Governance Self-governing structure to oversee rules, monitoring

and trade
109
The following summarizes the mechanics of the proposed system:
1. Participating emission sources agree to the prescribed emission limits and
standardized emissions monitoring and reporting rules.
2. Participating emission sources receive a four-year stream of emission allow-
ances equal to their target emission level.
3. Emission offsets may be generated by independently verified GHG mitigation
projects.
4. Starting in 2002, annual allowances and offset holdings must cover annual
emissions.
5. Participants can comply by cutting their own emissions or purchasing emis-
sion allowances from those who make extra emission cuts or from offset
projects.
6. Failure to fulfill commitments triggers automatic non-compliance penalties.
7. Periodic auctions and organized trading will reveal market prices.
Tradable emission allowances and offsets exist and are transferred as records in
a publicly accessible computerized tracking system called the Registry. Each unit is
assigned a unique identification number. A variety of best-practice methods for
measuring or calculating GHG emissions will be applied, including continuous emis-
sions monitoring, fuel records and mass balance calculations. Methods for address-
ing new entrants and facilities and partial ownership of emission sources have been
proposed but need further refinement based on industry input.
Emission offsets reflect mitigation actions generated by individual projects under-
taken by entities not qualified to be emission sources (generate less than 250,000
tons CO2e emissions reductions per year). When possible, standard rules and con-
servative reference emission values can be used to determine offset project effective-
ness. Offsets are earned by undertaking specified mitigation projects that must be
independently verified. Multiple small offset projects will be grouped into 100,000
ton pools. Offset projects must follow standardized registration, reporting and
verification processes. This design feature is intended to produce fungible instru-
ments that will be recognized in other emerging carbon markets.
Examples of eligible offset projects include:
Carbon sequestration from forest expansion, and domestic no-till agricultural
soils and agricultural tree and grass plantings;
Electric power generated by wind, solar and geothermal systems;
Methane capture and destruction (e.g. from agricultural waste, landfills and
coal mines).
Selected categories of offsets can be implemented in Brazil. This feature allows
the pilot market participants to develop expertise on issues associated with cross-
border transactions, including the opportunity to develop trading across differing
legal and regulatory systems. Brazil also represents a natural location as it has ex-
tensive linkages to many Midwest businesses, presents a variety of low-cost mitiga-
tion opportunities, and its policymakers are actively preparing for the international
carbon market.
Annual auctions of emission allowances will be held to help stimulate the market
and publicly reveal prices. To complement private contracting, an electronic mecha-
nism for hosting CCX trading will provide a central location that facilitates trading
and publicly reveals price information. Several existing trading systems will be con-
sidered for use in the CCX market. Trading will be encouraged by provision of uni-
form trade documentation and by listing standardized spot and forward contracts
on the CCX electronic market.
Market Administration Issues, Public Policy Context
Administration of the CCX market by an efficient, corporate style governance sys-
tem, with an elected Board of Directors and a strong Chief Executive, is rec-
ommended. The rules structure and decisions of the governing body should be codi-
fied through a Rulebook. Under the guidance of the Board and the Rulebook, a pro-
fessional staff should be responsible for making most operational decisions and man-
aging outside vendors. In order to assure the market incorporates current best prac-
tices, several expert advisory committees will be convened, including committees on
rules and enforcement; market operations and technical specifications; and emis-
sions and project monitoring, verification and audits.
110
The capabilities of various service providers who might construct and/or operate
an emissions and emissions trading registry were examined. Discussions have been
held with Environmental Resources Trust, Epotec, PricewaterhouseCoopers and the
Emissions Trading Group in the U.K. Each group offers potentially attractive fea-
tures that will be further examined. EFP has also worked to build links to other
emerging GHG markets (e.g. the UK), multilateral organizations, national govern-
ments, corporations, non-governmental organizations and financial and commodity
exchanges.
Professional research on the accounting and tax issues associated with partici-
pating in the CCX was conducted under subcontract by PricewaterhouseCoopers
LLP. An extensive body of guidance on both accounting and tax issues associated
with emissions trading has been established in the U.S. Preliminary indicative guid-
ance is provided on proper accounting and income tax treatment for issues associ-
ated with enrollment in the market, trading, swaps, auctions and participation
costs.
A variety of legislative proposals have provided further indication that participa-
tion in CCX will help position participants to intelligently influence and benefit from
possible future regulations. Legislative proposals to require reductions in power
plant CO2 emissions, and to assist or reward farm and forest carbon sequestration,
could introduce a policy environment that provides competitive advantages to CCX
participants.
Industry Outreach, Response
In order to identify potential CCX participants, a database containing salient in-
formation on major Midwest emission sources was assembled and screened based
on various criteria. Many Midwest businesses have already initiated climate change
programs, and some industries, including the electric power industry, are already
involved in emissions trading. Approximately 100 companies met the screening cri-
teria. Additional screening identified forty firms that received first-round invitations
to participate in forming the market. Sectors represented in this list include: electric
power, auto manufacturers, petroleum refining, transport, pharmaceuticals, forest
and paper, chemical manufacturers, and computers and telecommunications.
The broad outreach program also involved development of a CCX website and bro-
chures, thirty conference presentations in eight countries, ten pieces of print media
coverage, four electronic media events, and three EFP-authored publications fea-
turing CCX.
Thirteen entities recognized as leaders in their industries provided a positive re-
sponse to the first round of invitations to participate in CCX. Each entity signed
a letter indicating their intent to help form the CCX rules and, if the rules are con-
sistent with their objectives, to participate in the CCX market. Included are major
manufacturers such as DuPont and Ford Motor Company, leading diversified energy
companies such as Cinergy and Calpine, major international financial entities such
as Swiss Re, agricultural businesses such as Growmark and Agriliance, and Zahren
Alternative Power, a leading landfill gas energy company. Appendix A provides a
brief description of the entities from which a positive response to the first round of
invitations has been received to date.
High-Level CCX Advisory Board
A high-level Advisory Board has been formed to receive strategic input from top
world experts from the environmental, business, academic and policy-making com-
munities. Members of the Board include internationally recognized environmental
leaders such as Maurice Strong and Israel Klabin, former governors of U.S. states
(James Thompson and David Boren), and individuals who have served in senior po-
sitions in major businesses and academic institutions, such as Donald Jacobs and
Jeffrey Garten. The dignitaries serving on this Board can help inform corporate and
governmental decision-makers and contribute to the formation of a robust group of
CCX market participants. Appendix B provides a brief biographical summary of
each of the individuals who have agreed to serve on the CCX Advisory Board.
Next Steps
The report constitutes an initialization of a market architecture. It is the first
step of an iterative process to be used in defining and implementing a pilot market.
The next step is to build consensus on the initial architecture by further incor-
porating industry input through a Technical Committee comprised of experts, in-
cluding representatives of the entities identified in Appendix A. The subsequent step
will be preparation and launch of the first phase of the pilot market. Further
iteration will involve refinement of market operations based on actual experience
with the market, and expansion to allow increased participation and broader geo-
graphic coverage.
111
Detailed discussions with participants and service providers will be undertaken
in order to identify a consensus on the market architecture and implementation
plan. This effort will aim to finalize emission baselines, targets, timetables, as well
as rules on emissions monitoring, non-compliance penalties, new entrants, and joint-
ly owned facilities. Proposed rules must be finalized for emission offset standards,
mechanics of aggregating offsets and project verification. A simultaneous effort can
be undertaken to select vendors for the registry and trading platform, and to enroll
project verifiers. The consensus market design will be codified in the CCX Rulebook,
which will also establish the responsibilities and operating procedures of the CCX
governance structure.
Pre-launch preparation of the market will entail official enrollment of partici-
pating emission sources, activation of the Registry, and placing emission allowances
in the accounts of participants. Launch of the market will require initiation of the
emission monitoring and reporting procedures, accepting applications from offset
projects, and activation of the electronic trading mechanism.
Operation of the market during the first year will include execution of the first
auction, acceptance of quarterly emission monitoring reports, issuance first-year off-
sets based on independent verification reports, and the compliance true-up subse-
quent to year end. A process for expanding the market will be established in order
to allow for orderly growth of participation.
Appendix A
Entities that have given early indication of their intent to participate in the CCX
market design process
DuPont: DuPont is a manufacturer of diverse products that deliver science-based
solutions that make a difference in peoples lives in food and nutrition; health care;
apparel; home and construction; electronics; and transportation. Founded in 1802,
the company operates in 70 countries and has 93,000 employees. DuPonts stated
core values reflect a commitment to safety, health and the environment; integrity
and high ethical standards; and treating people with fairness and respect.
Ford Motor Company: Ford Motor Company is one of the worlds largest auto-
mobile manufacturers and marketers. Its brands include Ford, Mercury, Lincoln,
Volvo, Jaguar, Land Rover, Aston Martin and TH!NK. The Company and its sub-
sidiaries also engage in other businesses, including financing and renting vehicles
and equipment. Hertz Corp., a Ford subsidiary, operates a car rental business, as
well as an industrial and construction equipment rental business. Fords philosophy
is that its operations, products and services should accomplish their functions in a
manner that takes responsibility for protection of health and the environment.
Alliant Energy: Alliant Energy Corporation is a growing energy-service provider
with both domestic and international operations. Headquartered in Madison, WI,
Alliant Energy provides electric, natural gas, water and steam services to more than
two million customers worldwide. Alliant Energy Resources Inc., the home of the
companys non-regulated businesses, has operations and investments throughout the
United States, as well as Australia, Brazil, China, Mexico and New Zealand.
Cinergy Corp.: Based in Cincinnati, Ohio, Cinergy Corp. is one of the leading
diversified energy companies in the U.S. Its largest operating companies, The Cin-
cinnati Gas & Electric Company (Ohio), Union Light, Heat & Power (Kentucky),
Lawrenceburg Gas (Indiana), and PSI Energy, Inc. (Indiana), serve more than 1.5
million electric customers and 500,000 gas customers located in a 25,000-square-
mile service territory encompassing portions of Indiana, Ohio and Kentucky. The
interconnections of Cinergys Midwestern transmission assets give it access to 37
percent of the total U.S. energy consumption.
Calpine: Headquartered in San Jose, CA, Calpine has an energy portfolio com-
prised of 50 energy centers, with net ownership capacity of 5,900 megawatts. Lo-
cated in key power markets throughout the United States, these centers produce
enough energy to meet the electrical needs of close to six million households.
Calpine was ranked 25th among FORTUNE magazines 100 fastest growing compa-
nies and it was recently ranked by Business Week as the 3rd best performing stock
in the S&P 500.
Energy company X (for the time being this company wishes to not make
public its intent to participate in CCX): With regional offices from coast to
coast, this company is one of the nations leading competitive power producers, has
natural gas facilities that connect major producing regions to some of the fastest-
growing markets in North America, and operates one of the top energy trading busi-
nesses in the country.
Swiss Re New Markets: Swiss Re is one of the worlds largest reinsurance firms.
It also owns primary insurance companies in numerous companies. Swiss Re New
Markets brings together Swiss Re Groups expertise in alternative risk transfer and
112
risk financing. Swiss Re New Markets staff includes more than 550 professionals
from investment banking, corporate finance, insurance and reinsurance. From loca-
tions in Zurich, New York and London, these specialists combine capital market in-
struments with finite and conventional reinsurance to produce integrated risk man-
agement and financial management solutions for large corporations and insurers.
Growmark: The GROWMARK System is a federated farmer cooperative network
based out of Bloomington, IL. GROWMARK holds ownership in five interregional
farmer cooperatives to ensure a stable and competitive supply of agricultural raw
materials, needed services, and research.
Agriliance: Agriliance is a partnership of agricultural producer-owners, local co-
operatives and regional cooperatives. Agriliance offers crop nutrients, crop protec-
tion products, seeds, information management, and crop technical services to pro-
ducers and ranchers in all 50 states as well as Canada and Mexico. They have sales
and marketing offices in St. Paul, Minn., and Kansas City, Mo. Agriliance, LLC was
formed on February 3, 2000, as an agronomy marketing joint venture between
Cenex Harvest States Cooperatives, Farmland Industries, Inc. and Land OLakes,
Inc.
IGF Insurance Company: IGF Insurance Company is the fifth-largest crop in-
surance company. IGF serves businesses in 48 states and maintains eight service
offices nationwide. IGF prides itself in developing niche products for farmers risk
management needs.
Iowa Farm Bureau Federation: Farm Bureau is an independent, nongovern-
mental, voluntary organization of farm and ranch families united with the freedom
to analyze their problems and formulate action to achieve educational improvement,
economic opportunity, and social advancement and, thereby, to promote the national
well-being. Farm Bureau is local, statewide, national and international in its scope
and influence and is nonpartisan, nonsectarian and nonsecret in character.
National Council of Farmer Cooperatives: NCFCs mission is to protect the
public policy environment in which farmer-owned cooperative businesses operate,
promote their economic well-being, and provide leadership in cooperative education.
NCFC remains the only organization serving exclusively as the national representa-
tive and advocate for Americas farmer-owned cooperative businesses.
ZAPCO: Zahren Alternative Power Corporation (ZAPCO) is among the largest
and most respected developers of Landfill Gas (LFG) projects in the United States.
Through predecessor subsidiaries and affiliates, including the former Energy Tac-
tics, Inc., ZAPCO has been engaged, since 1981, in the development, financing, and
operation of a large and diverse group of LFG-based projects, including waste-to-en-
ergy electricity systems.
Appendix B
Biographies of the Advisory Board
David Boren, has been President of The University of Oklahoma since 1994.
Under Mr. Borens leadership, the University has emerged as a recognized pace-
setter in American public higher education, with twenty major new programs initi-
ated in the Arts, Honors College, International Programs and innovative programs
to enhance faculty-student relations. Mr. Boren formerly served as a three-term
U.S. Senator, where he was Chairman of the Senate Select Committee on Intel-
ligence and a member of the Agriculture Committee. Mr. Boren, a Rhodes scholar,
served as a member of the Yale University Board of Directors from 1988 to 1997.
Prior to becoming Senator, Mr. Boren served as Governor of Oklahoma and in the
state legislature.
Ernst Brugger is Founding Partner and Chairman of Brugger Hanser & Partner
Ltd. in Switzerland, a business consulting firm with international experience and
range. He is also a professor at the University of Zurich, chairman and member of
the board of various companies and a member of the International Committee of the
Red Cross (ICRC). Dr. Brugger serves as Chairman of the Board of Directors of Sus-
tainable Performance Group, an investment and risk management company which
invests in pioneering and leading companies which have taken up the cause of sus-
tainable business
Jeffrey E. Garten is Dean of the Yale School of Management. Formerly Garten
served as undersecretary of commerce for international trade in the first Clinton
Administration. He also held senior economic posts in the Ford and Carter adminis-
trations. From 19791992 he was a managing director first at Lehman Brothers,
where he oversaw the firms Asian investment banking activities from Tokyo, and
then at the Blackstone Group. Currently Dr. Garten writes a monthly columnist for
Business Week. His latest book is The Mind of the CEO (2001).
Donald P. Jacobs is Dean of the Kellogg Graduate School of Management and
its Gaylord Freeman Distinguished Professor of Banking. Under his leadership, the
113
Kellogg School has become a leader in the field of business and finance and is con-
sistently ranked as one of the top five business schools in the United States. Dean
Jacobs is a former Chairman of the Board of Amtrak (19751979) and currently
serves on several corporate boards. His work on banking, corporate governance and
international finance has been published in many scholarly journals and he holds
several honorary degrees and professional awards.
Dennis Jennings is the Global Risk Management Solutions Leader for
PricewaterhouseCoopers (PwC) Global Energy and Mining Industry Practice. Mr.
Jennings previously served as the Dallas/Fort Worth Energy Industry Market Lead-
er; Co-Chairman of the U.S. Oil and Gas Industry Program; and on Steering Com-
mittee of the International Energy Practice. His responsibilities have included lead-
ing PwCs global risk management practice for the energy and mining industry, pro-
viding financial advice and performing due diligence reviews on numerous merger,
acquisitions and divestiture efforts by major international corporations.
Joseph P. Kennedy II is Chairman and President of Boston-based Citizens En-
ergy Group. Before returning to Citizens Energy, Mr. Kennedy represented the 8th
Congressional District of Massachusetts in the U.S. House of Representatives for 12
years. Mr. Kennedy founded the non-profit company in 1979 to provide low-cost
heating oil to the poor and elderly. Under his leadership, Citizens grew to encom-
pass seven separate companies, including the largest energy conservation firm in
the U.S. Mr. Kennedy also advises and serves on the boards of several companies
in the energy, telecommunications, and health care industries. Mr. Kennedy is the
son of the late U.S. Sen. Robert F. Kennedy.
Israel Klabin is the president of the Brazilian Foundation for Sustainable Devel-
opment, a major Brazilian non-governmental organization devoted to issues of envi-
ronmental and sustainable development policy. Mr. Klabin is the former chairman
of Klabin SA, one of the largest forestry companies in Latin America. He is a former
mayor of Rio de Janeiro and was one of the main Brazilian organizers of the United
Nations Conference on the Environment (Rio 92). He is also actively involved in sev-
eral philanthropical activities.
Bill Kurtis has had a distinguished career in broadcasting for over 30 years, as
a news anchor in Chicago and later of the national CBS Morning News. He started
his own company, Kurtis Productions, when he returned to Chicago in the mid
1980s and currently hosts shows on the Arts and Entertainment network. Mr.
Kurtis is involved in The National Science Explorers Program, Electronic Field
Trips and the Electronic Long Distance Learning Network, all aimed at teaching
children about science. Mr. Kurtis and his shows have been the recipients of several
awards. He serves on the board of directors of organizations devoted to natural his-
tory and the environment, including the National Park Foundation, the Nature Con-
servancy and the Kansas State Historical Society.
Thomas E. Lovejoy, is a world-renowned tropical and conservation biologist. Dr.
Lovejoy is generally credited with having brought the tropical forest problem to the
fore as a public issue. In 1987, he was appointed Assistant Secretary for Environ-
mental and External Affairs for the Smithsonian Institution and is Counselor to the
Smithsonians Secretary for Biodiversity and Environmental Affairs. Dr. Lovejoy is
also Chief Biodiversity Advisor to the President of the World Bank. From 1989 to
1992, he served on the Presidents Council of Advisors in Science and Technology
(PCAST), and acted as scientific adviser to the Executive Director of the United Na-
tions Environment Programme (199497). He was the World Wildlife Funds Execu-
tive Vice President from 1985 to 1987. Dr. Lovejoy is the author of numerous arti-
cles and books.
David Moran is vice president of ventures for the Electronic Publishing group
of Dow Jones & Company and president of Dow Jones Indexes. Mr. Moran is also
President of Dow Jones Indexes, which includes all Dow Jones indexes for countries,
regions, sectors and industry groups as well as the world index. He is also chairman
of Dow Jones Sustainability Group Index GmbH. Prior to joining Dow Jones, Mr.
Moran was an associate with Patterson, Belknap, Webb & Tyler, a New York City
law firm, from 1979 to 1985.
Les Rosenthal is a former Chairman of the Chicago Board of Trade (CBOT) and
a principal of Rosenthal Collins, a leading Chicago-based commodities and futures
trading firm. During his time as member of the Board and Chairman of the CBOT,
Mr. Rosenthal was instrumental in advancing the cause of new and innovative ex-
change-traded products such as Treasury Bond futures and insurance derivatives.
Maurice Strong is a former Secretary General of the 1992 United Nations Con-
ference on Environment and Development (the Rio Earth Summit) and Under-Sec-
retary General of the United Nations. He is currently the Chairman of the Earth
Council, a non-governmental organization dedicated to the cause of sustainable de-
velopment. In June of 1995, he was named Senior Advisor to the President of the
114
World Bank. From December 1992 until December 1995, Mr. Strong was Chairman
and Chief Executive Officer of Ontario Hydro, one of North Americas largest utili-
ties. Mr. Strong is an advisor to the United Nations, and has been a director and/
or officer of a number of Canadian, U.S. and international corporations.
James R. Thompson is a former four-term Governor of Illinois and currently a
managing partner of Winston and Strawn. During his last term as Governor, Mr.
Thompson was involved in the implementation of the sulfur dioxide (SO2) market
created by the 1990 Clean Air Act. During his last term as Governor he was the
Head of the Global Climate Change Task Force at the National Governors Associa-
tion (19881989). Governor Thompson is also a director of the Chicago Board of
Trade (CBOT).
Brian Williamson is the Chairman of the London International Financial Fu-
tures and Options Exchange (LIFFE), one of the worlds largest exchanges. Mr.
Williamson has been involved in trading financial futures for almost three decades
in London, New York and Chicago. He held senior executive positions for prominent
trading firms and was a member of the International Advisory Board of the Nasdaq
Stock Market, becoming Chairman in 1996. He was also Governor-at-Large of the
National Association of Securities Dealers in Washington DC. (19951998).
Corporate giants to aid design of US carbon market

Dr. Richard L. Sandor
Environmental FinanceJune 2001
As the US enters a major debate on energy use and endeavours to develop a pol-
icy to reduce carbon dioxide (CO2) emissions, a project taking shape in the upper
Midwest is poised to test market-based solutions to global warming.
The size, diversity, and volume of emissions (1.375 billion tons of CO2 per year)
from this regionIllinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wis-
consinmake it well-suited as a starting point for a robust and representative
greenhouse gas (GHG) emissions trading market expandable to include all of North
America. The regions economic output of $2 trillion is equal to that of the UK and
the Netherlands combined. A diverse group of major firms has indicated their intent
to participate in the design phase of a voluntary pilot trading market for the region,
the Chicago Climate Exchange (CCXsee Table 1).
1. Companies participating in the design phase of the CCX

Agriliance National Council of Farmer Cooperatives
Alliant Energy NiSource
Calpine ORMAT
Carr Futures/Credit Agricole Indosuez Pinnacle West Capital
Cinergy PG&E National Energy Group
DuPont STMicroelectronics
Ford Motor Company Suncor Energy
GROWMARK Swiss Re
IGF Insurance Temple-Inland
International Paper The Nature Conservancy
Iowa Farm Bureau Federation Wisconsin Energy
IT Group ZAPCO
Midwest Generation
A study of such a market suggests a goal of reducing participants GHG emissions

by 5% below 1999 levels over five years. The feasibility study for the CCX was fund-
ed by the Chicago-based Joyce Foundation through a special Millennium Initiative
grant to the Kellogg Graduate School of Management at Northwestern University.
According to Joyce Foundation president Paula DiPerna, the CCX would represent
a major step forward while an appropriate regulatory framework for greenhouse
gases evolves. A regional success on a global challenge like climate change could be
transformational. Because of its variety of economic activities, including its strong
agricultural sector, the Midwest is the perfect place to begin demonstrating the re-
gional-global interface.
Trading will help reduce GHG emissions cost-effectively and offer new opportuni-
ties for environment-based income for farmers, foresters and renewable energy
firms.
115
A high-level advisory board consisting of academic, business, environmental and
public sector leaders has been formed with the objective of gathering strategic input
(see Table 2).
2. Advisory board members

David Boren President of The University of Oklahoma; former US Sen-
ator and Governor of Oklahoma
Ernst Brugger Founding Partner and Chairman of Brugger Hanser &
Partners
Jeffrey E. Garten Dean of Yale School of Management
Lucien Y. Bronicki Chairman of ORMAT International
Donald P. Jacobs Dean, Kellogg Graduate School of Management, North-
western University
Dennis Jennings Global Risk Management Solutions Leader,
PricewaterhouseCoopers
Jonathan Lash President, World Resources Institute
Joseph P. Kennedy II Chairman and President of Boston-based Citizens Energy
Group; former US Congressman
Israel Klabin President of the Brazilian Foundation for Sustainable De-
velopment
Bill Kurtis National broadcaster, host of Arts& Entertainment cable
TV show
Thomas E. Lovejoy Chief Biodiversity Advisor to the President of the World
Bank
David Moran President of Dow Jones Indexes
Les Rosenthal Former Chairman, Chicago Board of Trade; principal,
Rosenthal Collins
Maurice Strong Chairman of the Earth Council, former UN Under-Sec-
retary General
James R. Thompson Former four-term Gov. of Illinois
Brian Williamson Chairman, London International Financial Futures and
Options Exchange (LIFFE)
The notion of trading carbon emissions has long been debated, but the proposed
CCX offers the first test of the concept on a scale that has global potential.
As proposed, the exchange could:
demonstrate that GHG emissions trading can achieve real reductions in emis-
sions across multiple business sectors;
help discover the price of reducing GHG emissions; and
develop the frameworks, for monitoring emissions, determining offsets and con-
ducting trades, needed for a successful market.
The study proposes starting the market in the seven Midwest states, including
emission offset projects in Brazil, and expanding overtime to include all of the US,
Canada and Mexico. Participating companies would be issued tradable emission al-
lowances. Emitting firms would commit to a phased schedule for reducing their
emissions by 5% by 2005.They could then either cut their emissions directly, buy
allowances from companies that have achieved surplus reductions, or buy credits
from agricultural or other offset projects. Potential offset projects would include re-
newable energy systems and the capture and use of agricultural and landfill meth-
ane. Offsets could also be generated by carbon sequestration projects such as forest
expansion and conservation soil management, which remove CO2 from the atmos-
phere (see Table 3).
116
3. Proposed market architecture for the Chicago Climate Exchange

Geographic coverage 2002: emission sources and projects in seven Midwest
states; 200305: emission sources and projects in US,
Canada and Mexico; Offsets also accepted from projects
in Brazil for both periods.
Greenhouse gases Carbon dioxide, methane and all other targeted GHGs
covered
Emission reduction 2002: 2% below 1999 levels, falling 1% per year through
targets 2005
Industries and firms Primarily downstream participants: power plants, refin-
targeted eries, factories, forestry, vehicle fleets; 40 firms initially
targeted. Individual entities or co-operating groups of en-
tities must have emissions exceeding 250,000 tons CO2e
in 1999 to become a participating emission source.
Tradable instruments Fully interchangeable emission allowances (original
issue) and offsets produced by targeted mitigation
projects
Eligible offset projects A. Carbon sequestration in forests and domestic soils; B.
Renewable energy systems; C. Methane destruction in ag-
riculture, landfills and coalbeds Offsets must be aggre-
gated into pools of 100,000 tons CO2e per year; Projects
placed into service after 1 January 1999 can qualify.
Emissions/project Direct measurement (eg CEMs); fuel flows/emission fac-
monitoring tors; carbon sequestration: standard tables, case-specific
estimates, direct measurement.
Provisions for new Allowance allocations reflect best technology emission
facilities rates
Annual public auctions 2% of issued allowances withheld and auctioned in spot
and forward auctions, proceeds returned pro rata
Central registry Central database to record and transfer allowances and
offsets; interfaces with emissions database and trading
platform
Trading mechanisms Standardised CCX Electronic Market, private contracting
Trade documentation Uniform documentation provided to facilitate trade
Accounting and tax Accounting guidance suggested by generally accepted ac-
issues counting principles; precedent exists for US tax treatment
Market governance Self-governing structure to oversee rules, monitoring and
trade
The commitment from the advisory committee and the participating companies is
to be commended. Their input in the design phase will help formulate the final rules
and procedures for the CCX and determine if this regional programme can shape
the beginning of a global solution to climate change.
Richard Sandor is chief executive of Environmental Financial Products. He would
like to thank Dr. Michael Walsh, Alice LeBlanc, Rafael Marques, and Scott Baron
for their invaluable support and intellectual contributions to this feasibility study.
With special thanks to the Joyce Foundation and Paula DiPerna, Margaret ODell,
Mary OConnell and James Seidita for making all this possible.
The case for coal

Dr. Richard L. Sandor
Environmental FinanceMarch 2001
Discussions of coal as a viable energy source of the future usually end with cries
of concern about its environmental impact. However, these discussions take a dif-
ferent tack when a generating company of the 21st century considers the many fac-
tors that affect the cost of producing power. These include the choice of fuel, changes
117
in technology that alter emissions, and the costs of offsetting carbon dioxide (CO2),
sulphur dioxide (SO2) and other pollutants. Those in the power business who make
informed investment decisions and are environmentally concerned should question
the premise that, under all conditions, coal is dead.
Many have long considered coal the least desirable fossil fuel because of its envi-
ronmental impact. It causes acid rain and contributes to global warming. Some con-
cluded that nothing could improve its status. Then came the US Clean Air Act
Amendments of 1990. Emissions trading and the economic viability of low sulphur
coal, sulphur scrubbing, and nitrogen oxide (NOX) controls have altered the belief
that the only way to eliminate acid rain is to reject coal as an energy source. But
this offered only a temporary respite in the belief that coal was dead. Low gas prices
bolstered the argument that there was a clean and cost-effective alternative to coal.
After an extended bull market in gas prices, however, and an energy crisis in
California, things are changing. Power plant investment decisions are far more com-
plex today and must account for the costs associated with environmental compli-
ance.
Under what conditions might coal-fired generation remain attractive in the face
of strict environmental constraints? To answer this question, we examined the eco-
nomics of new power plant construction in a manner that creates a special new class
of hypothetical power plants: the emission-neutral plant. We assume a new power
plant must fully offset its emissions of SO2, NOX and CO2 via assumed cap-and-
trade systems. Analysis of the emission-neutral plant reveals some interesting and
surprising conclusions about fuel choice and environmental costs.
For example, assume a utility must choose among the following alternative invest-
ments for a new power plant: coal; gas combined cycle (CC); gas combustion turbine
(CT); wind; and solar. Assume the features of each plant reflect the most efficient
and clean technologies that are commercially available.1 The coal and CC plants are
run as baseload units (i.e. they produce 85% and 80% of potential annual produc-
tion, respectively). The GT plant runs at peak demand with a low capacity factor
(15%). The wind and solar plants are smaller in capacity and are assumed to oper-
ate at 30% of capacity.
We assume a natural gas cost of $4.00/million BTU and a coal cost of $1.21/mil-
lion BTU, (todays prices). Table 1 presents the assumed prices for emission allow-
ances.
Table 1. Environmental compliance cost

($/ton)
Commodity Price
CO2 $5, $10
SO2 $160
NOX $1,500
SO2 and NOX figures reflect market prices. CO2
price based on projections and early trading experi-
ence
The emission rates for each plant type (presented in Table 2) reflect a coal plant
that uses low-NOX burners and selective catalytic reduction technologies to control
NOX (and mercury), and has wet limestone SO2 scrubbing (95% effectiveness). The
CC gas plant also uses low-NOX burners and selective catalytic reduction tech-
nologies to control NOX while the CT plant uses steam injection.
1 Analyzing Electric Power Generation under the CAAA, Office of Air and Radiation; US EPA,
March 1998
118
Table 2. Emission rates of newly built power

plants (lbs/MMBtu)
Plant type CO2 SO2 NOX
Coal 207 0.08 0.1

Gas 117 0 0.024
Wind/solar 0 0 0
Source: Clean Coal Technology Compendium, EPA,
DOE
Table 3 presents the capital and operating/maintenance costs reported in the

March 1998 EPA study cited in footnote 1. Capital costs are spread evenly over 20
years. The fifth column shows the total cost per megawatt hour of electricity pro-
duced by each emission neutral plant assuming a CO2 price of $5/ton. The last three
columns indicate which plant type can produce power at the lowest cost for various
CO2 prices (including $0/ton).
Table 3. Cost estimates for emission-neutral power plants ($/MWh)

Levelised O&M costs Total fuel Total cost
capital cost: (variable Rank 1 Rank 2 Rank 3
Plant type price ($/Mwh)
over 20 yrs and fixed) (CO2 = $0) (CO2 = $5) (CO2 = $10)
($/Mwh)* (CO2 = $5)
($/Mwh) ($/Mwh)
Wind
(50MW) 19 10 29 2 1 1
Coal
(400MW) 9 7 11 34 1 2 2
Gas CC
(400MW) 4 4 27 37 3 3 2
Gas CT
(80MW) 14 2 44 64 4 4 3
Solar
(5MW) 77 3 80 5 5 4
* Coal price = $1.21/million BTU (about $25/short ton), gas price = $4/million BTU.
Includes CO2, SO2, NOX costs (see table 2).
The costs for operating a coal unit and a CC are approximately equal at $10/ton CO2.
The chart shows power generation costs ($/MWh) for each of the five plant types
for various CO2 prices, assuming gas prices of $4.00/million BTU. Under our fuel
price assumptions, total production costs at an emission-neutral coal-fired plant are
below those of a CC gas plant when CO2 prices are below $10/ton.
119
In another scenario we find that a $5.00 gas price makes a new emission-neutral
coal plant less costly than a CC gas plant if CO2 prices are below $21. Conversely,
a $3.00 gas price would make a CC gas plant the cheapest option. Naturally, vola-
tility of gas prices increases the riskiness of gas plants.
In the hypothetical scenario of emission neutrality for new fossil-fuelled power
plants, wind-power is the least-cost option. But, while new technologies are making
wind power cost-competitive, even without comprehensive emission offset require-
ments for fossil plants, it may not be feasible to meet demand growth exclusively
with wind facilities. Their production is inherently variable and they are not feasible
in all locations. At the best sites, however, wind plants can be expected to achieve
a capacity factor of over 30%, which reduces the cost per hour of generation.2
In essence, power generators in the 21st century face indifference curves when
choosing to build new power plants. Various combinations of fuel prices, emissions
prices (and rules) and technologies will yield identical costs of production. A clean-
burning gas plant facing high gas prices may have no cost advantage over a coal
plant that faces low fuel costs but high environmental costs. Fully-offset coal plants
can be the least-cost option in locations such as the western US (eg Montana) where
power plants can be built right on top of abundant coal reserves.
New coal-fired plants are a viable option under some circumstances, even when
their emissions are fully offset. It is also clear that the choice among alternative
plant types is quite complex. For example, our model assumes technology is con-
stant and does not include emissions associated with coal extraction.
With US public policy encouraging reliance on domestic energy and sophisticated
private sector investment decisions, we may see more coal-fired power plants in the
near future.
Richard Sandor is chairman and chief executive of Environmental Financial Prod-
ucts.
2 American Wind Energy Association

710sand1.eps
120
Native Americans sell carbon credits from forestry project
David Robson
Sustainable Forestry Management (SFM), a London-based company which invests
in forestry projects with environmental and social benefits, has agreed to buy green-
house gas (GHG) emission reductions equivalent to almost 48,000 tons of carbon di-
oxide from native Americans in Montana.
SFM is paying the Confederated Salish and Kootenai tribes an undisclosed
amount to reforest 100 hectares of their Montana reservation that was hit by forest
fires in 1994. In return, the tribes have undertaken to maintain the forest for 100
years and to pass on the associated GHG offsets or carbon credits to SFM for 80
years, explains Michael Walsh, senior vice-president of Chicago-based Environ-
mental Financial Products, which arranged the deal.
The transaction was co-ordinated by the Montana Offset Coalition, an organiza-
tion which is helping farmers and foresters participate in the emerging carbon mar-
kets.
The quantity of GHG offsets is based on conservative growth assumptions, says
Walsh, and the deal will also help improve soil quality while providing a revenue
stream for local communities, notes SFM.
This first project will set the stage for a process that will help fund chronically
underfunded tribal reforestation projects throughout the west and start the ball roll-
ing on market-based solutions to global warming, says Tom Corse, supervisory for-
ester for the Confederated Salish and Kootenai tribes.
U.S. Landfill Concern, Ontario Utility Agree to Swap Gas-Emission Rights
Peter A. McKay
Staff Reporter of The Wall Street JournalOctober 26, 1999
An American landfill company and a Canadian power-generation concern will an-
nounce today what experts describe as the largest exchange to date of rights to emit
ozone-depleting gases.
Such rights are effectively off-exchange pollution futures.
Officials from both sides said Ontario Power Generation Inc. has bought from
Zahren Alternative Power Corp. the rights to emit 2.5 million tons of carbon diox-
ideroughly the equivalent released by 550,000 cars in one year.
An adviser to the deal said the total value was less than $25 milliona per-ton
rate well below that charged in previous emissions-rights sales.
The deal was structured as a private exchange because it comes before a global
treaty is in place for governments to formally recognize such international emissions
deals. The companies and their advisers said that in part they wanted to set a
precedent for the fledgling greenhouse-gas trade, hoping it would demonstrate the
need for little regulation to require industry to combat global warming.
Were hoping this will jump-start the thinking on how to initiate a more formal-
ized process, said Bernie Zahren, president and chief executive of the Avon, Conn.,
company that bears his name.
Mr. Zahrens firm removes methane gas from landfills, mostly in the Northeast
U.S. He said that in the deal, Ontario Power essentially bought the right to 119,000
tons of that methane in exchange for 2.5 million tons of carbon dioxide. That com-
pound is the international standard for measuring reductions of greenhouse gases
that many scientists believe contribute to global warming.
The actual emissions cuts will be reviewed by PricewaterhouseCoopers LLP, said
Richard Sandor, chairman of Environmental Financial Products, a Chicago con-
sulting firm that advised both sides.
The deal comes at least nine years ahead of a timetable set by the Kyoto Protocol,
a treaty named for the Japanese city where it was negotiated, which will require
37 industrialized nations to reduce greenhouse-gas emissions beginning in 2008.
The treaty hasnt been ratified by the U.S. Senate, nor has it approved a separate
congressional bill that would give credit to companies that reduce emissions ahead
of schedule, said Andrew Hoffman, a Boston University professor who has studied
the trading of emissions credits.
What youve got here is basically a demonstration product, Mr. Hoffman said.
There are some big questions in creating a global trading system, and this deal
seems to be orchestrated to address a lot of them.
That is exactly what Mr. Sandor said he intended the deal to do. A former vice
chairman of the Chicago Board of Trade, he said he hopes to establish an exchange-
traded market for carbon-dioxide credits similar to one that exists for sulfur dioxide,
which is blamed for acid rain.
121
He estimated that market is valued at about $3 billion.

We have a whole new avenue thats being opened to us as air and water become
scarcer, Mr. Sandor said. Essentially we have to ration them, or the planets going
to be one big barbecue. And the best way to do that is through the free market,
not the government dictating where all the emissions are going to be.
Mr. Hoffman, however, said developing countries could be left behind in such a
scenario, because their businesses and governments are less accustomed to U.S.-
style financial products such as the emissions derivatives Mr. Sandor envisions.
Ever since Kyoto, developing countries have been worrying that America and
other big countries will just buy their way out of the limitations, Mr. Hoffman said.
If they have to go through a period of adjustment just to figure out how to trade
the credits, maybe that would mean being left behind.
Greenhouse Gas Emissions Trading Market Emerges in Chicago

Environment News Service
CHICAGO, Illinois, May 30, 2001 (ENS)The worlds first emissions trading mar-
ket for greenhouse gases is materializing in Chicago. A diverse group of 25 large
corporations and nonprofit organizations has agreed to participate in the design
phase of a voluntary pilot trading market, the Chicago Climate Exchange.
The project is spearheaded by Dr. Richard Sandor, CEO of Chicago based Envi-
ronmental Financial Products, who is known for developing innovative commodity
and environmental markets and has designed revolutionary market mechanisms for
environmental protection programs.
Sandor said today that the results of a feasibility study he conducted to test inter-
est in the Chicago Climate Exchange show that a voluntary pilot market starting
in seven midwestern states, is feasible and can be expanded over time.
The widespread corporate interest in preparing rules and regulations for this vol-
untary market affirms the private sectors demand for flexible, market based mecha-
nisms to address climate change, Sandor said.
Sandor is a visiting scholar at the Kellogg Graduate School of Management at
Northwestern University. The feasibility study was funded by the Chicago based
Joyce Foundation through a $347,000 Millennium Initiative grant.
710sand2.eps
122
The idea of trading carbon emissions has been debated for at least a decade, but
the proposed Chicago Climate Exchange offers the first test of the concept on a scale
that has global potential.
The Midwest is a promising location for starting the market because of its 20 per-
cent share of the U.S. economy and greenhouse gas emissions, its mix of manufac-
turing, transport, energy, agriculture and forestry sectors, and its extensive inter-
national linkages.
Dr. Sandors study suggests a goal of reducing participants emissions of six green-
house gases, including carbon dioxide, by five percent below 1999 levels over five
years. These emissions, created by the combustion of coal, oil and gas, are linked
by most scientists to climate change.
This market based approach may be particularly attractive to U.S. corporations
after President George W. Bush announced in March that U.S. would not partici-
pate in the international agreement governing the emission of these six greenhouse
gases known as the Kyoto Protocol.
Most of the actions needed to begin reducing the risk of climate change will have
to be undertaken by the private sector, so a market developed by a private associa-
tion can be an important part of the overall solution, said Sandor.
Trading would help reduce greenhouse emissions in a cost effective manner and
offers new opportunities for environment based income for farmers, foresters and re-
newable energy firms.
As proposed, the Chicago Climate Exchange could demonstrate that greenhouse
gas trading can achieve real reductions in emissions across different business sec-
tors. It could help discover the price of reducing greenhouse gases.
It would develop the standard frameworks for monitoring emissions, determining
offsets and conducting trades needed for a successful market.
Sandors study proposes starting the market in seven Midwest statesIllinois, In-
diana, Iowa, Michigan, Minnesota, Ohio and Wisconsinincluding emission offset
projects in Brazil, and expanding over time.
Participating companies would be issued tradable emission allowances. Emitting
firms would commit to a phased schedule for reducing their emissions five percent
by 2005.
They could then either directly cut their emissions, or buy allowances from compa-
nies that have achieved surplus reductions. Or the market traders could buy credits
from agricultural or other projects that produce power without emissions or offset
greenhouse gases by holding them out of the atmosphere.
Potential offset projects include renewable energy systems, such as wind and solar
power, and capture and use of agricultural and landfill methane. Offsets can also
be generated by carbon sequestration projects such as forest expansion and con-
servation soil management, which remove carbon dioxide from the atmosphere.
Twenty-five companies and non-profits have agreed to participate in the market
design phase, including manufacturers, electric utilties, agricultural cooperatives,
and conservation groups.
The participants include Ford, DuPont, Suncor Energy, The Nature Conservancy,
STMicroelectronics, Temple-Inland, International Paper, the Iowa Farm Bureau
Federation, Alliant Energy, Calpine, Cinergy, NiSource, PG&E National Energy
Group, Wisconsin Energy, ZAPCO, Agriliance and GROWMARK. (A complete list
can be found below.)
An advisory board consisting of academic, business, environmental and public sec-
tor leaders has been formed with the objective of gathering strategic input.
Board members include Maurice Strong, former under-secretary general of the
United Nations who led the 1992 Earth Summit in Rio de Janeiro; James Thomp-
son, a former four term governor of Illinois; Jonathan Lash, president of the World
Resources Institute, a non-profit research organization based in Washington, DC;
Joseph P. Kennedy II, chairman and president of the Boston based Citizens Energy
Group; Dr. Thomas Lovejoy, a world renowned tropical and conservation biologist,
and Israel Klabin, president of the non-governmental Brazilian Foundation for Sus-
tainable Development. (A complete list is given below.)
The Chicago Climate Exchange would represent a major step forward while an
appropriate regulatory framework for greenhouse gases evolves, said Joyce Founda-
tion president Paula DiPerna. A regional success on a global challenge like climate
change could be transformational. Because of its variety of economic activities, in-
cluding its strong agricultural sector, the Midwest is the perfect place to begin dem-
onstrating the regional-global interface.
The Joyce Foundation has a tradition of catalyzing new ideas, said DiPerna, who
acted as vice president of international affairs for the late oceanographer and con-
servationist Jacques Cousteau.
123
DiPerna says Dr. Sandors interest in the trading approach to environmental
problems is what attracted the support of the Joyce Foundation.
He, being a trader par excellence, said we have to discover the price at which
greenhouse gas emissions credits will trade, DiPerna told ENS. The way to do that
is to try it and see. We never know if it will work until we try. Now that we know
we have enough players in the game, the game will start as early as next year.
The Joyce Foundation is now considering a request to be involved in the second
phase of the Chicago Climate Exchangethe phase that would launch the trading.
DiPerna and Sandor believe that a representative carbon trading market can
yield lessons that may be relevant for economies worldwide for the next century.
The beauty of this emissions trading mechanism is that its both practical and
philosophical, DiPerna said. We must solve the problem in a practical manner and
retain the philosophical value that motivates us all.
Companies Participating in the Design Phase of the Chicago Climate Ex-
change
Agriliance: Agriliance is a partnership of agricultural producer-owners, local co-
operatives and regional cooperatives. Agriliance offers crop nutrients, crop protec-
tion products, seeds, information management, and crop technical services to pro-
ducers and ranchers in all 50 states as well as Canada and Mexico.
Alliant Energy: Alliant Energy Corporation is a growing energy service provider
with both domestic and international operations. Headquartered in Madison, Wis-
consin, Alliant Energy provides electric, natural gas, water and steam services to
more than two million customers worldwide. Alliant Energy Resources Inc., the
home of the companys non-regulated businesses, has operations and investments in
the United States, Australia, Brazil, China, Mexico and New Zealand.
Calpine: Headquartered in San Jose, California, Calpine has an energy portfolio
comprised of 50 energy centers, with net ownership capacity of 5,900 megawatts,
enough energy to meet the electrical needs of close to six million households.
Calpine was ranked 25th among Fortune magazines 100 fastest growing compa-
nies and it was recently ranked by Business Week as the 3rd best performing
stock in the S&P 500.
Carr Futures/Credit Agricole Indosuez: Carr Futures, a subsidiary of Credit
Agricole Indosuez, is a global institutional brokerage firm headquartered in Chicago.
Carr holds memberships on all major futures and equity markets worldwide, and
consistently ranks among the largest futures brokerage firms in the world.
Cinergy Corporation: Based in Cincinnati, Ohio, Cinergy is a diversified energy
company. Its largest operating companies, The Cincinnati Gas & Electric Company
of Ohio, Union Light, Heat & Power of Kentucky, Lawrenceburg Gas of Indiana, and
PSI Energy, Inc. of Indiana, serve more than 1.5 million electric customers and
500,000 gas customers. The interconnections of Cinergys Midwestern transmission
assets give it access to 37 percent of the total U.S. energy consumption.
DuPont: DuPont is a science company, delivering science based solutions in the
areas of food and nutrition, health care, apparel, home and construction, electronics,
and transportation. Founded in 1802, the company operates in 70 countries and has
93,000 employees.
Ford Motor Company: Ford is the worlds second largest automotive company.
Its Automotive operations include: Ford, Mercury and TH!NK brands; wholly owned
subsidiaries Volvo, Jaguar, Aston Martin and Land Rover; Mazda (33 percent own-
ership); and Quality Care and Kwik-Fit. Ford Financial Services, providing auto-
motive financing and other services, and The Hertz Corporation, providing car rent-
al services, are the other major components of Ford Motor Company.
GROWMARK, Inc.: GROWMARK, headquartered in Bloomington, Illinois, is a
federated regional cooperative that provides agriculture related products and serv-
ices in Illinois, Iowa, Wisconsin and Ontario, Canada. FS brand farm supplies and
services are marketed to farmers in these areas by nearly 100 GROWMARK mem-
ber cooperatives.
IGF Insurance Company: IGF is the fifth largest crop insurance company serv-
ing farmers in 46 states from eight service offices nationwide. IGF develops niche
products for farmers risk management needs.
International Paper: With over 12 million acres of land managed in the United
States alone, International Paper is one of the worlds largest private landowners.
International IP has global businesses in paper and paper distribution, packaging,
building materials and other forest products.
Iowa Farm Bureau Federation: The Iowa Farm Bureau is a federation of 100
county Farm Bureaus in Iowa. Founded in 1918, it now takes in more than 154,000
member families. Legislative, educational and service programs are provided to help
farm families prosper and improve their quality of life. An independent, non-govern-
124
mental organization, the federation is local, statewide, national and international in
scope and is nonpartisan, nonsectarian and nonsecret in character.
IT Group, Inc.: The IT Group is a provider of consulting, engineering and con-
struction, remediation and facilities management services through its group of high-
ly specialized companies. Its broad range of services includes the identification of
contaminants in soil, air and water and the design and execution of remedial solu-
tions.
Midwest Generation: Headquartered in Chicago, Midwest Generation, a sub-
sidiary of Edison Mission Energy, owns 13 electricity generating units in Illinois
and Pennsylvania with a generating capacity of over 11,400 megawatts, enough
power for more than 13 million homes. Midwest Generation sells wholesale power
in competitive electricity markets. The company is undertaking a major program to
reduce emissions from its coal fired plants.
National Council of Farmer Cooperatives (NCFC): NCFC is the only organi-
zation serving exclusively as the national representative and advocate for Americas
farmer owned cooperative businesses. It aims to protect the public policy environ-
ment in which farmer owned cooperative businesses operate, promote their economic
well being, and provide leadership in cooperative education.
NiSource Inc.: NiSource is a holding company with headquarters in Merrillville,
Indiana, whose operating companies engage in all phases of the natural gas and
electric business from exploration and production to transmission, storage and dis-
tribution of natural gas, as well as electric generation, transmission and distribu-
tion. Its companies provide service to 3.6 million customers from the Gulf of Mexico
through the Midwest to New England.
ORMAT: ORMAT is the world leader in distributed reliable remote microturbine
power units, also known as Closed Cycle Vapor Turbo Generators. ORMATs oper-
ations use locally available heat sources, including steam and hot water generated
by geothermal sources, industrial waste heat, solar energy, biomass, and low grade
fuels.
Pinnacle West Capital Corp.: Based in Phoenix, Arizona, Pinnacle West is the
parent company of APS and Pinnacle West Energy. APS is Arizonas oldest and
largest electric utility, serving more than 857,000 customers, and Pinnacle West En-
ergy is the companys unregulated wholesale generating subsidiary. Among the utili-
ties listed in the S&P 500, Pinnacle West is ranked in the top 10 percent for envi-
ronmental performance by an international investment advisory firm. Fortune
magazine ranks the company in the top 10 percent for total shareholder return over
the last five years.
PG&E National Energy Group: Headquartered in Bethesda, Maryland, PG&E
National Energy Group develops, owns and operates electric generating and gas
pipeline facilities and provides energy trading, marketing and risk management
services in North America. The National Energy Group operates power production
facilities with a capacity of about 7,000 megawatts, with another 10,000 megawatts
under development, and more than 1,300 miles of natural gas transmission pipeline
with a capacity of 2.7 billion cubic feet per day. PG&E National Energy Group is
not the same company as Pacific Gas and Electric Company, the California utility,
and is not regulated by the California Public Utilities Comission.
STMicroelectronics: STMicroelectronics is the worlds third largest independent
semiconductor company. Shares in the company are traded on the New York Stock
Exchange, on Euronext Paris and on the Milan Stock Exchange. The company de-
signs, develops, manufactures and markets a broad range of semiconductor inte-
grated circuits and devices used in a wide variety of microelectronic applications,
including telecommunications systems, computer systems, consumer products, auto-
motive products and industrial automation and control systems. In 2000, the com-
panys net revenues were $7.8 billion and net earnings were $1.45 billion.
Suncor Energy, Inc.: Suncor is a Canadian integrated energy company that ex-
plores for, acquires, produces, and markets crude oil and natural gas, refines crude
oil, and markets petroleum and petrochemical products. Suncor has three principal
business units: Oil Sands, Exploration and Production, and Sunoco.
Swiss Re: Founded in 1863 in Zurich, Switzerland, Swiss Re is the worlds second
largest reinsurer, with roughly 9,000 employees and gross premiums in 2000 of
US$15.3 billion. Standard & Poors gives the company its AAA rating; Moodys rates
it Aaa. From over 70 offices in 30 countries, Swiss Re offers insurers and corporates
classic (re)insurance covers, alternative risk transfer instruments, and supple-
mentary services for comprehensive risk management.
Temple-Inland Inc.: A diversified forestry, forest products and financial services
company, the three main operating divisions of Temple-Inland include a paper
group, which manufactures corrugated packaging products; a building products
group, which manufactures a wide range of building products and manages the
125
Companys forest resources consisting of approximately 2.2 million acres of
timberland in Texas, Louisiana, Georgia and Alabama; and the financial services
group, which consists of savings bank, mortgage banking, real estate, and insurance
brokerage activities.
The Nature Conservancy: A nonprofit organization founded in 1951, The Na-
ture Conservancy is the worlds largest private international conservation group
taking in over one million members. The conservancy has protected over 12,089,000
acres of land in the United States.
Wisconsin Energy Corporation: Headquartered in Milwaukee, Wisconsin, Wis-
consin Energy Corp. is an $8.4 billion holding company with a portfolio of subsidi-
aries engaged in electric generation; electric, gas, steam and water distribution;
pump manufacturing and other non-utility businesses. The corporations utilities
subsidiaries serve more than one million electric and 950,000 natural gas customers
in Wisconsin and Michigans Upper Peninsula.
ZAPCO: Zahren Alternative Power Corporation (ZAPCO) is among the largest de-
velopers of landfill gas projects in the United States. ZAPCO develops, finances, and
operates waste-to-energy electricity systems, and has executed international trades
of greenhouse gas reductions involving over two million tons CO2 equivalent.
ZAPCO operates 10 of its 27 landfill gas projects in the Midwest.
Chicago Climate Exchange Advisory Board Members
David Boren is the president of the University of Oklahoma. He served as a
member of the Oklahoma House of Representatives (19671975), Governor of Okla-
homa (19751977) and as a U.S. Senator (19791994). Senator Boren was the long-
est serving chairman of the Senates Select Committee on Intelligence. Boren was
educated at Yale and attended Oxford University as a Rhodes Scholar and earned
a law degree from the University of Oklahoma College of Law.
Lucien Bronicki is the chairman of Ormat International, an Israeli company in
the field of innovative technology solutions to geothermal power plants, power gen-
eration from industrial waste heat, and solar energy projects. Chairman of Ormat
since he founded the company in 1965, Bronicki chairs the World Energy Councils
Israeli National Committee, is a member of the Executive Committee of the
Weizmann Institute of Science, and member of the board of Ben Gurion University.
Ernst Brugger is founding partner and chairman of Brugger Hanser & Partner
Ltd. in Switzerland, a business consulting firm with international experience and
range. He is also a professor at the University of Zurich, chairman and member of
the board of various companies and a member of the International Committee of the
Red Cross (ICRC). Dr. Brugger serves as chairman of the Board of Directors of Sus-
tainable Performance Group, an investment and risk management company which
invests in pioneering companies which have taken up the cause of sustainable busi-
ness.
Jeffrey Garten is Dean of the Yale School of Management. Formerly, Garten
served as undersecretary of commerce for international trade in the first Clinton ad-
ministration and has held senior economic posts in the Ford and Carter administra-
tions. From 1979 to 1992 he was a managing director first at Lehman Brothers,
where he oversaw the firms Asian investment banking activities from Tokyo, and
then at the Blackstone Group. Currently Dr. Garten writes a monthly column for
Business Week magazine. His latest book, The Mind of the CEO, was published
this year.
Donald Jacobs is dean of the Kellogg Graduate School of Management and its
Gaylord Freeman Distinguished Professor of Banking. Jacobs is a former chairman
of the board of Amtrak and currently serves on several corporate boards. His work
on banking, corporate governance and international finance has been published in
many scholarly journals and he holds several honorary degrees and professional
awards.
Dennis Jennings is the global risk management solutions leader for
PricewaterhouseCoopers global energy and mining industry practice. Jennings pre-
viously served as the Dallas/Fort Worth energy industry market leader, co-chairman
of the U.S. oil and gas industry program, and on the steering committee of the inter-
national energy practice. He handles PwCs global risk management practice for the
energy and mining industry, providing financial advice and performing due diligence
reviews on merger, acquisitions and divestiture efforts by major international cor-
porations.
Joseph P. Kennedy II is chairman and president of Boston based Citizens En-
ergy Group, a non-profit company he founded in 1979 to provide low-cost heating
oil to the poor and elderly. Before returning to Citizens Energy, Kennedy rep-
resented the 8th Congressional District of Massachusetts in the U.S. House of Rep-
resentatives for 12 years. Citizens now encompasses seven separate companies, in-
126
cluding the largest energy conservation firm in the U.S. Kennedy advises and serves
on the boards of companies in the energy, telecommunications, and health care in-
dustries. He is the son of the late U.S. Senator and Attorney General Robert Ken-
nedy.
Israel Klabin is the president of the Brazilian Foundation for Sustainable Devel-
opment, a Brazilian non-governmental organization devoted to issues of environ-
mental and sustainable development policy. He is the former chairman of Klabin
SA, one of the largest forestry companies in Latin America. A former mayor of Rio
de Janeiro, Klabin was one of the main Brazilian organizers of the 1992 United Na-
tions Conference on the Environment in Rio de Janeiro.
Bill Kurtis has been a broadcaster for over 30 years, as a news anchor in Chicago
and on the national CBS Morning News. He founded Kurtis Productions when he
returned to Chicago in the mid-1980s and now hosts shows on the Arts and Enter-
tainment network. Kurtis is involved in The National Science Explorers Program,
Electronic Field Trips and the Electronic Long Distance Learning Network, and
serves on the board of directors of the National Park Foundation, and the Nature
Conservancy.
Jonathan Lash is president of the World Resources Institute, a Washington, DC
based non-governmental organization. From 1993 until 1999, Lash served as co-
chair of the Presidents Council on Sustainable Development, a group of govern-
ment, business, labor, civil rights, and environmental leaders that developed rec-
ommendations for national strategies to promote sustainable development. From
1987 to 1991, he headed the Vermont Agency of Natural Resources, having served
the previous two years as Vermonts Commissioner of Environmental Conservation.
Thomas Lovejoy, is a world renowned tropical and conservation biologist and
author generally credited with having brought the tropical forest problem to the fore
as a public issue. In 1987, he was appointed assistant secretary for environmental
and external affairs for the Smithsonian Institution and is counselor to the
Smithsonians secretary for biodiversity and environmental affairs. Dr. Lovejoy is
also chief biodiversity advisor to the president of the World Bank. From 1989 to
1992, he served on the Presidents Council of Advisors in Science and Technology,
and acted as scientific adviser to the executive director of the United Nations Envi-
ronment Programme from 1994 to 1997.
David Moran is vice president of ventures for the Electronic Publishing group
of Dow Jones & Company and president of Dow Jones Indexes. He is president of
Dow Jones Indexes, which includes all Dow Jones indexes for countries, regions, sec-
tors and industry groups as well as the world index. He is also chairman of Dow
Jones Sustainability Group Index GmbH.
Les Rosenthal is a former chairman of the Chicago Board of Trade and a prin-
cipal of Rosenthal Collins, a Chicago based commodities and futures trading firm.
He has been instrumental in advancing the cause of innovative exchange traded
products such as Treasury Bond futures and insurance derivatives.
Maurice Strong is a former secretary general of the 1992 United Nations Con-
ference on Environment and Development, the Rio Earth Summit, and under-sec-
retary general of the United Nations. He is currently the chairman of the Earth
Council, a non-governmental organization dedicated to the cause of sustainable de-
velopment. In June of 1995, he was named senior advisor to the president of the
World Bank. From 1992 to 1995, Strong was chairman and CEO of Ontario Hydro,
one of North Americas largest utilities.
James Thompson is a former four term governor of Illinois and currently a man-
aging partner of Winston and Strawn. During his last term as governor, Thompson
was involved in the implementation of the sulfur dioxide (SO2) market created by
the 1990 Clean Air Act and headed the Global Climate Change Task Force at the
National Governors Association. He is a director of the Chicago Board of Trade.
Brian Williamson is the chairman of the London International Financial Fu-
tures and Options Exchange, one of the worlds largest exchanges. He has been in-
volved in trading financial futures for almost three decades in London, New York
and Chicago. He held senior executive positions for prominent trading firms and
was a member of the International Advisory Board of the Nasdaq Stock Market, be-
coming Chairman in 1996. He was also governor-at-large of the National Association
of Securities Dealers in Washington, DC from 1995 to 1998.
Senator KERRY. Thank you very much, Dr. Sandor.

Ms. Claussen.
127
STATEMENT OF EILEEN CLAUSSEN, PRESIDENT, PEW CENTER
ON GLOBAL CLIMATE CHANGE
Ms. CLAUSSEN. My name is Eileen Claussen, and I am the presi-
dent of the Pew Center on Global Climate Change.
The Pew Center on Global Climate Change is a nonprofit, non-
partisan, and independent organization, dedicated to providing
credible information, straight answers, and innovative solutions in
the effort to address climate change.
Thirty-six major companies in the Pew Centers Business Envi-
ronmental Leadership Council, most included in the Fortune 500,
work with the Center to advance public policy and educate them-
selves and the public on the risks, challenges, and solutions to cli-
mate change.
Mr. Chairman, I would like to emphasize two points for you
today. First, it is our view that the long-term reductions of green-
house gas emissions needed to truly address global climate change
can only be achieved through a comprehensive and binding strat-
egy.
Second, we believe the steps we take to reduce greenhouse gas
emissions, especially those promoting the development and use of
energy-efficient technologies, will help U.S. industry compete in the
international marketplace. Reducing emissions to the levels nec-
essary to prevent serious climate disruption will take decades, be-
cause it will essentially require a new industrial revolution, one en-
abling the broad introduction of low carbon technologies to power
a growing global economy.
Much as some would like to believe otherwise, it will be extraor-
dinarily difficult, if not impossible, to muster the kind of global sus-
tained effort that is needed without the force of legally binding
commitments. There is little incentive for any country or any com-
pany to undertake real action unless ultimately all do and are in
some manner held accountable.
Markets, of course, will be instrumental in mobilizing the nec-
essary resources and know-how. Market-based strategies such as
emissions trading, will also help deliver emission reductions at the
lowest possible costs, but markets could move us in the right direc-
tion only if they are given the right signals. In the United States,
these signals have neither been fully given nor fully accepted.
Three decades of experience fighting pollution in the U.S. have
taught us a great deal about what works best. In general, the most
cost-effective approaches allow emitters flexibility to decide how
best to meet a given, binding emissions limit, provide early direc-
tion so targets can be anticipated and factored into major capital
and investment decisions, and employ market mechanisms such as
emissions trading to achieve reductions where they cost least.
To ease the transition from established ways of doing business,
targets should be realistic and achievable. What is important is
that they be strong enough to spur real action and to encourage in-
vestment in development of the technology and infrastructure
needed to achieve the long-term objectives.
A good first step is to get our house in order by immediately re-
quiring accurate measurement, tracking, and reporting of green-
house gas emissions. In addition, the Government could enter into
128
voluntary enforceable agreements with companies or sectors willing

to commit to significant reductions.
While such efforts could help get the United States on track, the
long-term emission reductions needed can be achieved only with a
more comprehensive and binding strategy. Alternative approaches
should be closely studied and the results publicly debated. But
much of the analysis thus far suggests that a cap-and-trade sys-
tem, which sets an overall cap on emissions and establishes a mar-
ket in carbon credits, can provide the private sector the flexibility
and incentive to achieve emission reductions at the least possible
costs.
As I mentioned earlier, there will be important side benefits to
many of these measures. The steps we take to reduce greenhouse
gas emissions will help U.S. companies compete in the inter-
national marketplace. Improving energy efficiency, for example,
makes for good business as well as good economic policy. In key en-
ergy-intensive or import-sensitive sectors, energy costs can make or
break companies.
ALCOA, for example, has reduced the electricity required to
produce a ton of aluminum by 20 percent over the last 20 years,
but almost all companies can benefit from aggressive energy-effi-
ciency measures, and many of the best companies already have.
IBM saved nearly $50 million in energy bills in the year 2000
alone. Despite the association of energy conservation with the so-
called soft path, it is striking the extent to which hard-driving,
profitable companies focus on high-tech lighting upgrades, smart
systems that precisely match energy availability to energy needs,
and new motors.
But energy efficiency is more than a cost reduction strategy. It
is also a business opportunity, both here and abroad. Companies
like Whirlpool and Maytag focus on producing high efficiency con-
sumer appliances. Toyota recently introduced the Prius, a high-effi-
ciency hybrid electric vehicle.
Two billion people in the world do not yet have access to elec-
tricity. Twice as many do not have access to cars, let alone SUVs.
Efficiently meeting the worlds exploding demand for power and
transportation services is a key business strategy for many compa-
nies. Global investment in energy between 1990 and 2020 will total
some $30 trillion in 1992 dollars.
The number of motor vehicles worldwide is expected to be 816
million by 2010 with enormous growth expected in developing
countries where vehicle ownership rates are now quite low. The
lure of this market has led a company like ABB, for example, to
focus on alternative energy and small-scale distributed power gen-
eration, including wind farms, fuel cells, and combined heat and
power plants using miniature gas turbines.
In closing, Mr. Chairman, as we address climate change, we will
learn as a nation what businesses are already finding, that oppor-
tunities and co-benefits abound, that meeting this challenge will
not bankrupt our economy but will make it more competitive, and
the sooner we move to address it, the better it will be, both for the
environment and our economy.
Thank you.
[The prepared statement of Ms. Claussen follows:]
129
PREPARED STATEMENT OF EILEEN CLAUSSEN, PRESIDENT,
PEW CENTER ON GLOBAL CLIMATE CHANGE
Mr. Chairman and members of the committee, thank you for this opportunity to
testify on climate change policy. My name is Eileen Claussen, and I am the Presi-
dent of the Pew Center on Global Climate Change.
The Pew Center on Global Climate Change is a non-profit, non-partisan and inde-
pendent organization dedicated to providing credible information, straight answers
and innovative solutions in the effort to address global climate change. Thirty-six
major companies in the Pew Centers Business Environmental Leadership Council,
most included in the Fortune 500, work with the Center to educate the public on
the risks, challenges and solutions to climate change. The BELC companies do not
contribute financially to the Center.
Mr. Chairman, I would like to emphasize two points for you today. First, it is our
view that the long-term reductions of greenhouse gas emissions needed to truly ad-
dress global climate change can only be achieved through a comprehensive and
binding strategy. Second, we believe the steps we take to reduce greenhouse gas
emissionsespecially those promoting the development and use of energy efficient
technologieswill help U.S. industry compete in the international marketplace.
In assessing how the United States can or should proceed to reduce greenhouse
gas emissions domestically and, in turn, internationally, it is important to recognize
certain defining characteristics of the climate challenge, and what they imply for the
effort required to meet it. First, climate change is truly a global challenge: Averting
the worst consequences of global warming ultimately requires action by all major
emitting nations.
Second, it is a long-term challenge. Reducing emissions to the levels necessary to
prevent serious climate disruption will take many decades because it essentially re-
quires a new industrial revolutionone enabling the broad introduction of low-car-
bon technologies to power a growing global economy.
Much as some would like to believe otherwise, it will be extraordinarily difficult
if not impossible to muster the kind of global, sustained effort that is needed with-
out the force of legally binding commitments. There is little incentive for any coun-
tryor any companyto undertake real action unless, ultimately, all do, and are
in some manner held accountable. Markets, of course, will be instrumental in mobi-
lizing the necessary resources and know-how; market-based strategies such as emis-
sions trading will also help deliver emissions reductions at the lowest possible cost.
But markets can move us in the right direction only if they are given the right sig-
nals. In the United States, those signals have been neither fully given nor fully ac-
cepted.
So what would constitute an effective domestic program to reduce greenhouse gas
emissions? To date, efforts to reduce U.S. emissions have been limited almost exclu-
sively to voluntary activities at the federal, state, local, and corporate level. Spurred
on by the United Nations Framework Convention on Climate Change, to which the
United States is a party, a number of these efforts have resulted in significant emis-
sion reductions. For example some companies on our Business Environmental Lead-
ership Council have cut emissions by 10 percent or more from 1990 levels. DuPont
has cut its greenhouse gas emissions by 45 percent from 1990 levels. Shell is on
track to hit 10 percent by next year (2002).
However, while technology has decreased the energy intensity of products and
processes over the last 50 years, the efficiency has been outpaced by increased de-
mand driven by economic expansion, population growth, and changing consumer
preferences. In the aggregate, voluntary efforts have not ended overall growth in
U.S. emissions. Indeed, U.S. emissions have grown approximately 12 percent over
the past decade. The lesson here is clear: voluntary programs can make a contribu-
tion, but will not, on their own, be enough.
What will? To effectively address climate change, we need to lower carbon inten-
sity, become more energy efficient, promote carbon sequestration, and find ways to
limit emissions of non-CO2 gases. This will require fundamentally new technologies,
as well as dramatic improvements in existing ones. New, less carbon-intensive ways
of producing, distributing and using energy will be essential. The redesign of indus-
trial processes, consumer products and agricultural technologies and practices will
also be critical. These changes can be introduced over decades as we turn over our
existing capital stocks and establish new infrastructure. But we must begin making
investments, building institutions, and implementing policies now.
Three decades of experience fighting pollution in the United States have taught
us a great deal about what works best. In general, the most cost-effective ap-
proaches allow emitters flexibility to decide how best to meet a given, binding emis-
sions limit; provide early direction so targets can be anticipated and factored into
130
major capital and investment decisions; and employ market mechanisms, such as
emissions trading, to achieve reductions where they cost least. To ease the transi-
tion from established ways of doing business, targets should be realistic and achiev-
able. What is important is that they be strong enough to spur real action and to
encourage investment in development of the technology and infrastructure needed
to achieve the long-term objective.
A good first step is to get our house in order by immediately requiring accurate
measurement, tracking and reporting of greenhouse gas emissions. Current efforts
lack rigorous reporting standards and verification requirements. Public disclosure of
the reported data, similar to what is required for certain pollutants under the fed-
eral Toxic Release Inventory (TRI) program, would encourage companies to hunt for
ways to reduce their greenhouse emissions.
There are other ways we can and should spur companies to act ahead of any man-
datory requirements. One is for the government to enter into voluntary enforceable
agreements with companies or sectors willing to commit to significant reductions
either in process emissions, or those from the use of products they make (e.g. auto-
mobiles or washing machines). In exchange for its commitment to cut emissions, a
company or sector should be guaranteed that it would not be bound by subsequent
mandates for greenhouse gas controls over the same time period. A similar approach
could encourage companies, particularly in the electric utility sector, to cut carbon
emissions as they undertake air pollution reductions required by existing lawa
more cost-effective way to achieve multiple environmental objectives.
While such efforts can help get the United States on track, the long-term emission
reductions needed can be achieved only with a far more comprehensiveand bind-
ingstrategy. Alternative approaches should be closely studied, and the results
publicly debated. But much of the analysis thus far suggests that a cap-and-trade
systemwhich sets an overall cap on emissions and establishes a market in carbon
creditscan provide the private sector the flexibility and incentive to achieve emis-
sion reductions at the least possible cost. As yet, we do not believe that we have
economic models that can accurately predict the long-term costs and benefits of a
serious climate strategy. However, the best analyses to date suggest that, with the
use of rational strategies, the costs are reasonable, particularly when weighed
against the serious and significant costs of not acting.
Also, as I mentioned earlier, there will be important side benefits to many of these
measures. The steps we take to reduce greenhouse gas emissions will help U.S. com-
panies compete in the international marketplace. Improving energy efficiency for ex-
ample, makes good business sense, as well as good economic policy.
Efficiency can mean new kinds of light bulbs that provide better light, waste less
energy, and save money over their lifetimes. It can mean new industrial process de-
signs that use less energy, produce more valuable products and produce less waste.
It can mean superconductors that dramatically cut electricity transmission losses.
Efficiency is not just a short-term solution; it is also a long-term solution. Both the
electricity system and the automobile waste most of the energy they produce. In
fact, we waste so much energy that the potential for long-term savings is huge.
The California energy crisis has focused all our attention on the critical role that
energy plays in U.S. competitiveness. Annual U.S. economy-wide energy expendi-
turesapproximately $567 billion in 1997are comparable to the total annual fed-
eral government consumption and investment expenditures ($538.7 billion in 1997;
note that this excludes transfer payments, for example, under entitlement pro-
grams). Our increasing dependence on imported oilwe now import over half of the
oil we usehas a major impact on our balance of payments, and makes us vulner-
able to price volatility in the world oil market. Thus improving energy efficiency
means reducing energy bills, freeing up our nations resources for other activities,
and increasing energy security.
The U.S. electricity system wastes two-thirds of the energy it producesin the
form of waste heat at power plants, and energy losses from power lines. Available
combined heat and power technologies could recapture most of the power plant
losses in a usable form. Distributed generation (power plants located near the point
of electricity use) and new kinds of conductors (and ultimately superconductors)
could dramatically reduce the distribution and transmission losses that now waste
9 percent of gross electric generation.
Similarly, cars and trucks waste 85% of the energy in each gallon of gasoline.
Thus the potential to improve fuel economy with advanced technologies is huge. For
example, new materials can reduce vehicle mass and thus the energy required for
acceleration. Regenerative braking can recapture energy lost during deceleration.
Advanced tires can cut rolling resistance.
In key energy-intensive or import-sensitive sectors, energy costs can make or
break companies. Alcoa, for example, has reduced the electricity required to produce
131
a ton of aluminum by 20% over the last 20 years. But almost all companies can ben-
efit from aggressive energy efficiency measures; and many of the best companies al-
ready have. IBM saved $14.8 million in energy bills in the year 2000 alone. Despite
the association of energy conservation with the so-called soft path, it is striking
the extent to which hard-driving, profitable companies focus on high-tech lighting
upgrades, smart systems that precisely match energy availability to energy needs,
and new motors.
But energy efficiency is more than a cost-reduction strategy, it is also a business
opportunity, both here and abroad. Companies like Whirlpool and Maytag focus on
producing high-efficiency consumer appliances. Toyota recently introduced the
Prius, a high efficiency hybrid electric vehicle. Two billion people in the world do
not yet have access to electricity; twice as many do not have access to cars (let alone
SUVs). Efficiently meeting the worlds exploding demand for power and transpor-
tation services is a key business strategy for many companies. Global investment
in energy between 1990 and 2020 will total some $30 trillion in 1992 dollars. The
number of motor vehicles worldwide is expected to be 816 million by 2010, with
enormous growth expected in developing countries where vehicle ownership rates
are now quite low. The lure of this market has led ABB, for example, to focus on
alternative energy and small-scale distributed power generation, including wind
farms, fuel cells, and combined heat and power plants using miniature gas turbines.
United Technologies International Fuel Cells subsidiary produces the worlds only
commercial fuel cell power plants.
In closing, Mr. Chairman, as we address climate change, we will learn as a nation
what businesses are already findingthat opportunities and co-benefits abound,
that meeting this challenge will not bankrupt our economy, but will make it more
competitive. And the sooner we move to address it, the better it will be for both the
environment and our economy. Thank you.
Senator KERRY. Thank you very much, Ms. Claussen.

Mr. Hawkins.
STATEMENT OF DAVID G. HAWKINS, DIRECTOR, NATURAL

RESOURCES DEFENSE COUNCIL, CLIMATE CENTER
Mr. HAWKINS. Thank you, Mr. Chairman. Good afternoon.
Let me make these points. First, today CO2 concentrations in the
atmosphere are greater than they have been in 400,000 years. We
have done this by taking 75 million years worth of stored carbon
and returning it to the atmosphere at about 100,000 times faster
than it was stored.
Second, unless we cut emissions, CO2 concentrations will keep on
going up.
Third, to reduce the risks of climate change, we have to stabilize
CO2 concentrations, and the higher our stabilization targets are,
the greater the risks there are. Without cuts, CO2 will go up some-
where between two times and five times preindustrial levels during
the next century. They may double before a child born today is eli-
gible for Social Security.
Fourth, once we release CO2, it is up in the atmosphere for a
long time. If we put 1,000 tons in the atmosphere today, a hundred
years from now, 400 tons of it are still there. A thousand years
from now, 150 tons of it are still there.
Now, these facts mean that delay in taking action is going to cost
us more than taking that action now. By failing to cut emissions,
we fail to slow the increasing momentum that leads to increasing
concentrations that leads to increasing climate risks. And we make
it much more difficult to reach any particular stabilization goal. In
fact, today we are in danger of passing reasonable stabilization
goals and eliminating options for stabilization at lower concentra-
tions for ourselves and for future generations.
132
Estimates by the Pacific Northwest Labs indicate that to pre-

serve the stabilization goal of 350 parts per million (roughly 30 per-
cent above preindustrial levels), we would have to be cutting global
emissions today; not increasing them but cutting them. To preserve
the 450 part per million scenario, we would have to be successful
in cutting global emissions from business as usual, starting no
later than 2007, and for 550, no later than 2013. Now, 2013 may
seem like a long way from now. It is in terms of congressional
terms or even senatorial terms. But it is not in terms of achieving
a real reduction in global emissions.
To cut global emissions 12 years from now, it requires additional
research and development, private sector decisions to invest bil-
lions of dollars, corporate decisions to deploy those resources, and
then actually doing the design work and getting it in the field. You
have to start today to accomplish those results. And, unfortunately,
we are not starting today.
But fortunately we have a range of policy options before us that
would send the right signal. Let me just list some that are pending
before Congress, and I mention them in my testimony.
First, the four-pollutant bill for electric generation: caps on pol-
lutants in accord with what previous witnesses have described.
This is Senate Bill 556, sponsored by yourself, by Senator Snowe,
and others. This can be complemented with a renewable portfolio
standard and a public benefits fund in order to help reduce overall
emissions in the electric sector, including carbon emissions.
In the vehicle sector, close the SUV loophole and adopt increases
in the CAFE standards to the 40-mile-per-gallon. Second, we sup-
port the CLEAR Act which provides tax incentives for high-tech-
nology vehicles. These programs would also produce substantial
cuts from business as usual in the motor vehicle sector.
In the building sector, S. 207 provides tax incentives for build-
ings. Buildings consume more than a third of the energy in our
economy. They are tremendous sources of waste in our economy.
We dont get benefits from that wasted energy. We get pollution.
We get higher energy bills. We can cut those bills. We can cut the
pollution, and we can do it cost-effectively, but we need to deal
with market barriers, and the tax incentives in S. 207 would do
that.
And finally let me just mention that integrated policies can have
tremendous power to deliver benefits, both economically and in
terms of pollution reduction, including global warming pollution re-
duction. This is exemplified in the Clean Energy Futures report
that the five labs of the Department of Energy published last No-
vember. That report really does show the power of integrated poli-
cies that consist of caps on pollution, tax incentives, performance
standards, and voluntary agreements.
Now, the suite of measures that these five labs analyzed in that
study showed that you could cut carbon emissions from business as
usual by the year 2020 by 30 percent, and that you could produce
energy bill savings of over $100 billion a year at the same time,
as well as cutting conventional pollutants by about 50 percent.
These are benefits you get by having an integrated set of policies,
ones that support one another in a complementary fashion.
133
Finally, let me just close by saying that the critical policy need
today is to adopt measures that send a clear signal to the private
sector that the Government is serious about the issue of climate
change. That signal needs to convince the private sector that cut-
ting carbon is good business. If you send that signal, you will har-
ness the private sectors energies. If you dont send that signal, you
will send the signal that has been sent for the last 10 years: which
is, The Government is not serious about it, and then the private
sector will sit by and wait until the Government is serious.
Thank you.
[The prepared statement of Mr. Hawkins follows:]
PREPARED STATEMENT OF DAVID G. HAWKINS, DIRECTOR, NATURAL RESOURCES
DEFENSE COUNCIL, CLIMATE CENTER
My name is David Hawkins, and I am the Director of the Climate Center at the
Natural Resources Defense Council. I appreciate the opportunity to appear before
you today on the issues of policies to combat the threat posed by climate change
or global warming. The Natural Resources Defense Council is a national, non-profit
organization of scientists, lawyers, and environmental specialists, dedicated to pro-
tecting public health and the environment. Founded in 1970, NRDC serves more
than 500,000 members from offices in New York, Washington, Los Angeles, and San
Francisco.
My message today is a simple one: the United States should no longer delay the
adoption of effective policies to limit emissions of carbon dioxide and other green-
house gas pollution. Nearly a decade ago, the U.S. and more than 100 other coun-
tries ratified a global climate change treaty that should have spurred adoption of
serious policies to combat global warming. Instead, we have had a decade of delay,
during which U.S. greenhouse emissions have increased by about 14%. Rather than
adopt meaningful policies that would have sent an effective signal to the private sec-
tor that constraining carbon emissions was a sound course for business planning,
we have relied on voluntary pledge programs that have been effective only in com-
municating to business leaders that the government is not yet serious about limiting
global warming pollution.
Mr. Chairman, the first rule for getting out of a hole is to stop digging. Every
year that we delay adoption of real global warming policies, we dig ourselves deeper
and make our ultimate response programs more costly, disruptive, and risky. The
United States is better positioned than any other country in the world to lead the
way in showing that economic progress can go hand in hand with controlling global
warming pollution. The time for us to exercise that leadership is now.
Global warming is a problem that becomes more difficult to manage the longer
we wait to start. Lets review some basic information. Starting about 300 million
years ago, for a period spanning about 75 million years, our planet transferred,
through geologic processes, vast amounts of carbon from the atmosphere and living
organisms to immense underground reserves, producing what we call fossil fuels.
Estimates are that some 5 trillion tonnes of carbon were stored in this way. Imagine
a 75 million year video documenting the removal of 5 trillion tonnes of material
from our global living room and its storage in a remote subterranean repository.
Now, imagine running this video in reverse and at hyper speed. That is what we
have been doing for the past 150 years.
Since the Industrial Revolution, we have been putting these immense under-
ground carbon stores back into the atmosphere by burning these fuels and we are
doing so at ever increasing speed. At current consumption rates, we put back in the
air each year about 100,000 years of stored carbon. In the last 150 years we have
put about 290 billion tonnes (gigatonnes or Gt) into the air. Amidst the claimed un-
certainties about the climate change phenomenon, there is no dispute that these
emissions have caused significant increases in atmospheric concentrations of CO2.
Todays CO2 levels are about 370 parts per million (ppm), about 30% higher than
the pre-industrial level of 280 ppm.
Nor is there any dispute that continued emissions of CO2 from fossil burning will
cause concentrations to go still higher. The latest forecasts for global carbon emis-
sions in the 21st century are sobering. The IPCCs most recent report estimates
emissions of between 1000 and 2100 Gt of carbon in the next 100 yearsor about
3 to 7 times more than we released in the last 150 years. With cumulative emissions
in these ranges, atmospheric CO2 would build up to between 540 and 970 ppm by
134
the year 2100 and continue to increase unless emissions were cut. Several of the
plausible emission scenarios would lead to doubled CO2 concentrations before a child
born today would be eligible for social security.
A final undisputed fact is that once a certain atmospheric concentration is
reached, it cannot be significantly reduced for hundreds of years, no matter how
drastic a response program policymakers decide to put in place. Unfortunately,
carbon dioxides lifetime in the atmosphere is a long one: of each 1000 tons we emit
today, 400 of those tons will still be in the air 100 years from now and 150 tons
will remain 1000 years from now. So the bed we are making is a procrustean one
that we and generations to come must lie on.
As a result of fossil fuel combustion, we already have increased atmospheric CO2
to levels greater than at any time during the past 400,000 years, notes the recent
National Academy of Sciences report to President Bush. And we are on a path to
dramatically higher concentrations in the coming decades. The policy questions this
Committee and this Congress must address are whether and when to act to reduce
the buildup of CO2 concentrations in the atmosphere. In NRDCs view the answers
are, yes we must act and we should start now.
Yet for more than a decade, fossil-fuel dependent industries have vehemently op-
posed policies to limit global warming pollution and governments, including the U.S.
government, have declined to adopt such policies. One can explain the position of
the industrial opponents as driven by the narrow interests of their current business
plans but what explains the compliant position of governments, which should show
at least some signs of support for the broader public interest. One explanation is
the influence of money on politics and enactment of the McCain-Feingold legislation
would be a salutary development. A second explanation is that legislators and exec-
utive branch officials believe that we can wait until the emergence of greater con-
sensus on the detailed nature of the threats we face from global warming and that
acting later will reduce the costs of a response program compared to acting now.
NRDC believes this basic assumptionthat later is cheaperis simply wrong.
The basic fact is that further delay in adopting effective policies forecloses options
for us and for our children. Further delay will increase the costs of achieving stable
atmospheric concentrations at levels less than double or even triple the concentra-
tions under which human societies have evolved. How important is it for us to pre-
serve the option to stabilize greenhouse gas concentrations at these lower levels?
The policy dilemma is that we may not know the answers in a manner convincing
to all for decades to come. Yet if we delay policy action until we have amassed a
more comprehensive and detailed body of evidence of the full range of damages that
a changed climate will bring, the planets growing emissions will have made stabi-
lizing concentrations at levels anywhere near todays levels very much more expen-
sive, if not impossible.
Each year of delay in developing an effective global response program brings us
closer to the point of no-return when we lose the ability to limit the increase in
greenhouse gas concentrations to lower levels. By failing to act, we are passing
these points of no-return without even understanding what we are giving up for our-
selves and our descendants. As I mentioned, pre-industrialization levels of CO2 did
not exceed 280 ppm and we are now at 370 ppm, the highest level in 400,000 years.
Because the way CO2 builds up in the atmosphere is well understood, we can deter-
mine the cumulative emissions during the next century that allow us to stabilize
the atmosphere at various levels, such as 350, 450, 550, 650, or even 750 ppm and
experts have done these calculations. The most recent IPCC report summarizes
these 21st century emission budgets as follows:
Stabilization target (ppm) 350 450 550 650 750

Cumulative emissions in 21st century
(GtC) 280 630 960 1150 1300
The same report forecasts cumulative global emissions during this period, in the
absence of effective global warming policies, to range from 1000 to 2100 Gt of car-
bon. While many members of Congress dont fancy themselves expert in global
warming, most have a good understanding of budget fundamentals. In budget terms
we are spending at a rate that far exceeds what we can afford if we learn we need
to stabilize CO2 concentrations in the 350 to 550 ppm range. At first glance, these
numbers may suggest we still have lots of time to study this issue but consider that
to keep the next hundred years emissions under 300 Gt we would need to cut to-
days global emissions immediately by more than 60% and keep them there while
135
the world grows in population and affluence. Or we might pursue the cut more
gradually but then we must achieve even deeper cuts later to stay within the same
budget. While this example is for the 350 ppm option, the same dynamic exists for
each of the higher stabilization targets: the longer we delay adoption of policies that
limit business as usual growth in emissions, the deeper the cuts the planet must
achieve to hit any stabilization target. And if we delay too long, each successive sta-
bilization target becomes impossible to achieve.
Dr. James E. Edmonds of the Department of Energys Pacific Northwest National
Laboratory and colleagues have estimated least-abatement cost schedules for reduc-
ing emissions to meet these stabilization targets. He points out that these schedules
require global emissions to drop below business as usual paths in the very near fu-
ture. Here is a summary of this information as he presented it to the Senate Energy
Committee on June 28, 2001:
CO2 Concentration (ppmv) 350 450 550 650 750
Maximum Global CO2 Emissions

(billions of tonnes carbon per
year) 8.5 9.5 11.2 12.9 14.0
Year in which Global Emissions
Must Break from Present
Trends Today 2007 2013 2018 2023
As can be seen, for the lower targets, the dates for achieving significant global
emission reductions are upon us now and the dates for preserving even the higher
targets are very close. To appreciate that these dates do not allow time for further
delay in adopting policies, consider the sequence of events that must occur to actu-
ally succeed in reducing global emissions. Clear public policies must be debated and
adopted, not just in the U.S. but in other countries too. The private sector must de-
velop strategies for response to those policies. The strategies must be translated into
specific investment decisions needed to carry out the strategies, most likely involv-
ing additional development work for certain technologies. The investment decisions
must be followed with detailed engineering and planning work. And this work must
be followed by deployment of lower-carbon technologies in the field on a sufficient
scale to actually reduce global emissions below current forecasted increases. Thus,
to reduce global emissions by dates like 20072020, we must start today with adop-
tion of effective policies.
Stated another way, further delay in adopting policies to limit global warming pol-
lution means we are discarding the options of stabilizing concentrations at levels
closer to the lower end of the range of targets. I cannot prove today that stabilizing
CO2 at 350 ppm is essential for our well-being. But I think it is self-evident that
it is not responsible to eliminate this option without any assurance that we can live
well with the resulting future. As the National Academy of Sciences panel noted in
its report to President Bush, risk increases with increases in both the rate and the
magnitude of climate change. By committing ourselves to ever-higher CO2 con-
centrations, we are committing to higher rates and magnitudes of climate change
for our descendants and ourselves.
Fortunately, there are no technical or economic impediments to adopting policies
today that will restore U.S. leadership on fighting global warming and send impor-
tant signals to the private sector and to other countries that the time for effective
action has arrived. Congress has before it a number of major legislative initiatives
that will address the principal sources of global warming pollution in the U.S. in
a way that will stimulate the new technology that is essential to meeting the chal-
lenges of limiting these emissions during the remainder of this century.
Near-term Domestic Policies to Address Global Warming

A. Comprehensive Power Plant Clean-up Legislation
NRDC supports comprehensive legislation to reduce all four major pollutants from
electric generationsulfur oxides, nitrogen oxides, mercury and carbon dioxide.
Electric generation is responsible for 40% of total U.S. CO2 emissions. We have the
technology to make significant reductions in CO2 from this sector through a com-
bination of efficiency measures on the supply and the demand side, and through in-
creased reliance on cleaner fuels. Enactment of a cap and trade program for CO2
from the electric sector would produce the needed market signal to all the players
in the electric production and consumption sectors that there is value in reducing
136
carbon emissions. The bipartisan bill, S. 556, the Clean Power Act, sponsored by
Senators Kerry, Lieberman, Collins, Jeffords and Snowe would accomplish this ob-
jective and NRDC strongly supports it.
Complementary policies to reduce emissions from electric generation include re-
newable portfolio standards proposed in the last Congress in S. 1369, to facilitate
the deployment of renewable energy resources, a public benefits fund as proposed
in last years S. 1369 and this years S. 597, to promote continued investments in
demand side management programs and net metering provisions (as found in both
bills), to promote clean and efficient distributed generation.
B. Policies to Reduce Petroleum Dependence and Protect the Environment
and Public Health
1. Close the Light Truck Loophole and Raise Fuel Economy Standards to 40 Miles
per Gallon
Incentives for advanced technology vehicles will be most effective if enacted in
combination with updated fuel economy standards. This can be accomplished in two
steps. First, congress should quickly eliminate the light truck loophole in the cur-
rent fuel economy standards. The share of new vehicles that are classified as light
trucks (SUVs, minivans, and pickups) has increased dramatically from 20 percent
of sales when the CAFE law was first enacted in 1975 to nearly 50 percent of the
market today. Yet the vast majority of vehicles currently regulated as light trucks
are in fact used in exactly the same way as passenger cars. EPA recognized the
need to eliminate the light truck loophole in its Tier II tailpipe standards beginning
in 2004. Congress should follow this lead and eliminate the light truck loophole in
fuel economy regulations in the same time frame. Congress should raise the overall
fuel economy standard for the entire light vehicle fleet over a longer time period.
A recent report by the Union of Concerned Scientists shows that the fleet average
efficiency could be increased to 40 miles per gallon (mpg) by 2012 and 55 miles per
gallon by 2020. The 40 mpg standard could be achieved through incremental im-
provements to vehicles with conventional drive trains, although hybrid and fuel cell
vehicles would likely contribute to achieving this efficiency level. The 55 mpg stand-
ard could be most easily achieved by applying hybrid technology throughout the ve-
hicle fleet.1
Congress should also set standards for replacement tires. It is a little known fact
that auto manufacturers use highly-efficient tires to comply with current CAFE re-
quirements, but comparable tires are not available to the consumers as replace-
ments. Congress should require replacement tires to meet the same specifications
as those sold on new cars. This measure alone would save over 70% more oil than
is likely to be found if drilling were permitted in the Arctic National Wildlife Ref-
uge.
2. Pass the CLEAR Act: Tax Incentives for Advanced Technology Vehicles and Alter-
native Fuels
The CLEAR Act (S. 760) provides a comprehensive set of performance-based tax
incentives to accelerate the commercialization of advanced technology vehicles and
alternative fuels. This bill is a major advance over previous vehicle tax credit pro-
posals because it is the first proposal to link publicly-funded incentives directly to
the public benefits provided by the vehicles that get the incentive, in this case the
amount of petroleum and carbon dioxide displaced. This is accomplished by linking
the amount of the tax credit it offers in part to the actual fuel economy of the quali-
fying vehicles. The bill also includes important provisions to ensure that public sup-
port only goes to truly advanced vehicles that reduce local air pollution as well as
global warming pollution and petroleum consumption.
The policy advances incorporated into CLEAR reflect the collective advice of a
unique coalition of environmental advocates and automakers. Public interest organi-
zations that have joined NRDC in endorsing the CLEAR Act include the Union of
Concerned Scientists, Environmental Defense, the American Council for an Energy-
Efficient Economy, the Ecology Center of Ann Arbor, Michigan and the Michigan
Environmental Council.
3. Establish Incentives to Promote Smart Growth Development Patterns
Gasoline use also can be reduced by directing real estate development away from
urban sprawl and toward smart growth. Smart-growth suburbs reduce the need
1 Union of Concerned Scientists, Drilling in Detroit: Tapping Automaker Ingenuity to Build

Safe and Efficient Automobiles. (June 2001). Available from http://www.ucsusa.org/
137
to drive by 30 percent or more, cutting household expenditures on transportation.2
An important incentive for smart growth is to establish mortgage qualification rules
that recognize the increased affordability of homes that have low transportation
costs because they are located in areas with good access to public transportation.
4. Modify the Ethanol Tax Credit to Make it Performance-Based
The largest incentive currently going to alternative fuels is the excise tax credit
provided for ethanol. Unfortunately, the environmental benefits generated by this
tax credit are limited because it does not currently incorporate performance criteria.
Most ethanol is currently produced from corn and requires high levels of chemical
and fossil fuel inputs that are almost as great as those for conventional gasoline
over the full fuel cycle of production and use. The existing tax incentive for ethanol
could be made much more effective by linking the amount of the credit to the net
reduction in global warming pollution or fossil fuel consumption achieved by the
ethanol producer. This would encourage ethanol producers to shift to less energy in-
tensive feedstocks, such as agricultural wastes and perennial crops, and to improve
the efficiency of their conversion processes.
C. Benefits of a Comprehensive Policies to Promote Advanced Technology
Vehicles and Alternative Fuels
The economic and environmental benefits of enacting the comprehensive set of
policies described here would be profound. EPA estimates that the average light
truck on the road today produces 164 pounds of smog-forming pollution (hydro-
carbons plus nitrogen oxides) and 8.0 tons of global warming pollution in traveling
14,000 miles each year. This does not include upstream emissions associated with
producing the fuel, which would add about 11 pounds of smog-forming pollution and
2 tons of global warming pollution, bring the totals to 175 pounds of smog-forming
pollution and 10 tons of global warming pollution. Conventional new vehicles are
substantially cleaner than this average with respect to smog-forming pollution, but
have roughly the same fuel economy and therefore the same global warming pollu-
tion emissions as the vehicle existing vehicle it is likely to replace. For example, a
vehicle meeting the National Low Emission Vehicle standard would emit only 12
pounds of smog-forming pollution from its tailpipe, but upstream emissions would
still add 11 pounds, bringing its total impact to 23 pounds of smog-forming pollution
and 10 tons of global warming pollution. In contrast, a hybrid vehicle qualifying for
a $3000 tax credit under the CLEAR Act would emit less than 1 pound of smog-
forming pollution from its tailpipe and would use only half as much fuel. As a re-
sult, its total impact would be only 6 pounds of smog-forming pollution and 5 tons
of global warming pollution.
Aggregating from the vehicle level to the fleet level, the Union of Concerned Sci-
entist (UCS) estimates that the combination of tax incentives and higher fuel econ-
omy standards advocated here would save 540 million barrels of oil in the year
2010, reduce upstream smog-forming pollution by 320 million pounds, and reduce
global warming pollution by 273 million tons. By 2020 the savings would be even
more dramatic: 1.8 billion barrels of oil, 1000 pounds of smog-forming pollution, and
890 million tons of global warming pollution. All of these benefits would be achieved
while saving consumers billions of dollars: nearly $10 billion in 2010 and $28 billion
in 2020 according to UCS.
D. Legislation to Provide Energy-Efficiency Incentives for the Buildings
Sector
The performance based approach adopted in the CLEAR Act should also be ap-
plied to the design of tax incentives to promote efficiency in other energy using sec-
tors of our economy. For example, The Energy-efficient Buildings Incentives Act
(S. 207), introduced by Sens. Robert Smith (R-N.H.) and Diane Feinstein (D-Calif.),
would provide tax breaks for building energy-efficient commercial buildings, schools,
rental housing and new homes, cutting their energy needs by 30 percent to 50 per-
cent. It also would provide tax incentives for the purchase of energy-efficient air con-
ditioners, heating and cooling systems, and solar water heating and photovoltaic
systems.
S. 207 provides tax incentives for energy efficiency in buildings. Buildings are an
often-overlooked source of energy waste. They consume over a third of U.S. energy
use and account for about a third of total air pollution in the United States. Energy
use in buildings can be cut in half or better using cost-effective technologies that
are available to those consumers that are willing to search them out.
2 David Goldstein, Mortgages Can Remove the Incentive for Sprawl, Earthword: The Journal
of Environmental and Social Responsibility, Issue #4.
138
But in practice most of those technologies simply are not options for energy users,
whether consumers or businesses, because they are too hard to find. Economic in-
centives can cause the entire chain of production and consumption, from the manu-
facturer to the contractor or vendor to the consumer, to accept new technologies rap-
idly. In the few cases where utility programs have been consistent enough across
the country and long-lasting enough, new products have been introduced that have
become or will become the most common product in the marketplace, with reduc-
tions in energy use of 30%60%.
Examples include:
Refrigerators, where, new products that are available this year consume less
than a quarter of the energy of their smaller and less feature-laden counter-
parts 30 years ago. The last step forward, saving 30%, resulted from a coordi-
nated incentive program, the Super Efficient Refrigerator Program (SERP),
which was sponsored by utilities with the advice of the U.S. Environmental Pro-
tection Agency.
Clothes washers, where some 10% of the market now provides cleaner clothes
at a reduction in energy use of 60% or more. This gain in efficiency resulted
from a program organized by the Consortium for Energy Efficiency (CEE) and
supported by Energy Star. New standards adopted by the Department of En-
ergyand supported by the manufacturerswill bring all of the market to this
level by 2007.
Fluorescent lighting systems, where new technologies that also will be required
by manufacturer-supported federal standards will reduce lighting energy con-
sumption by 30% compared to mid-70s practice while improving the perform-
ance of the lighting system.
The policies embodied in S. 207 are built on success stories like these.
Manufacturers have pointed out that in order to introduce new technologies that
cost more and that are perceived to be risky, they need the assurance that the same
product can be sold throughout the country and that the financial incentives will
be available for enough time to make it worth investing in production. S. 207 does
this by providing nationally uniform performance targets for buildings and equip-
ment that will be eligible for tax incentives for 6 full years.
Its worth mentioning that S. 207 and other policies improving efficiency of elec-
tricity and natural gas use have immediate benefits for consumers and the economy.
Lets start with the problem of electric reliability. Not only in California and the
West, but in other parts of the country, we are facing the risk of electrical blackouts
and/or excessively high electricity prices this summer and next. Regions that are
confronting these problems are trying to move forward aggressively both on energy
efficiency programs and on power plant construction. But the lead times for most
actions on the supply side are far too long to provide a solution. And demand-side
approaches attempted on a state-by-state level are much less effective than coordi-
nated national activities.
Here, S. 207 could be a critical piece of a national solution. Air conditioners, for
example, represent about 30% of summertime peak electric loads. Air conditioners
that use a third less power can be purchased today, but they are not produced in
large enough quantities to make a difference to peak load. If incentives are made
available, manufacturers could begin to mass-produce these products in a matter of
months, not years. Mass production and increased competition for tax incentives
will drive prices sharply lower, so the incentives will be self-sustaining in the long-
term. And with 5 million air conditioners being sold every year, a sudden increase
in energy efficiency could have a significant effect in balancing electricity supply
and demand even after less than a year.
Another peak power efficiency measure with a very short lead time is installing
energy-efficient lighting systemseither new or retrofitin commercial buildings.
Some 15% of electrical peak power results from lighting in commercial buildings.
Efficient installations, such as those NRDC designed and installed in our own four
offices, can cut peak power demand by over two-thirds while improving lighting
quality. Lighting systems are designed and installed with a lead time of months,
so incentives for efficient lightings as provided in S. 207 could begin to mitigate elec-
tric reliability problems as soon as next summer.
The second major new problem is the skyrocketing cost of natural gas, which
caused heating bills throughout the country to increase last winter. Improved en-
ergy efficiency can cut gas use for the major usesheating and water heatingby
30%50%. Much of this potential could be achieved in the short term, because water
heaters need replacement about every ten years, and are the second largest user
139
of natural gas in a typical household (and largest gas user in households living in
efficient homes or in warm areas).
These types of quick-acting incentives help consumers in two different ways: first,
they provide new choices that are not now available in practice for families and
businesses that want to cut their own energy costs while obtaining tax relief. But
they also help the non-participants, because reduced demand cuts prices for every-
one.
E. Benefits of Integrated Policies to Promote Efficiency, Renewable Energy
and Limit Carbon Emissions
The beneficial impacts of policies like those described above are magnified when
assembled into an integrated program that combines incentives for energy efficiency
and renewable energy and explicit measures to limit carbon emissions. An example
of such an integrated program can be found in the November 2000, Department of
Energy Report, Scenarios for a Clean Energy Future. The policies described in the
Clean Energy Future report include greatly expanded research and development
funding for energy efficiency and renewable energy breakthroughs, a renewable en-
ergy portfolio standard, incentives for renewable energy production and suites of
performance standards and incentives for the vehicles, buildings, and industrial sec-
tors. DOEs report forecasts that together, these policies would avoid the need for
construction of over 60 percent of the nations base-case predicted need for new elec-
tric power plants over the next 20 years. The policies also would lower Americans
electric bills by over $120 billion per year, cut CO2 pollution by one-third, and slash
emissions of other pollutants in half. These policies are not the imaginings of wild-
eyed dreamers. In many cases they amount to expanding programs that have prov-
en to work well already: cap and trade emissions programs; tax incentives; appli-
ance standards; targeted research and development programs; and well-structured
voluntary performance commitment programs. Adoption of such programs now is
feasible and we urge members of the Committee to lend their support to early enact-
ment of each of these measures.
Senator KERRY. Thank you very much, Mr. Hawkins.

Mr. Cassidy.
STATEMENT OF FRANK CASSIDY, PRESIDENT AND CHIEF

OPERATING OFFICER, PSEG POWER LLC
Mr. CASSIDY. Thank you, Mr. Chairman, Senator.
I am pleased and honored to appear before you this afternoon to
represent my company, Public Service Enterprise Group, and our
coalition, the Clean Energy Group. The Clean Energy Group mem-
bers are Consolidated Edison, KeySpan Energy, Northeast Utili-
ties, Conectiv, Exelon, PG&E National Energy Group, Sempra En-
ergy, as well as my own company, PSEG.
Members of our coalition share a number of significant attributes
and principles. We operate and are developing power plants in al-
most every region of the United States. We operate coal, gas, and
oil-fired fossil fuel generating plants and nuclear-powered facilities.
We believe in responsible environmental stewardship. We are com-
mitted to working cooperatively with the environmental commu-
nity, Government, and other stakeholders to promote adoption of
progressive policies that provide meaningful environmental im-
provements on an economically sound and sustainable basis.
There is no question that the issues of environmental policy, cli-
mate change, and carbon dioxide reductions present tremendous
challenges to our industry. Members of our coalition share the view
that the scientific evidence on climate change has progressed to the
point where prudent action on reducing greenhouse gas emissions
is warranted. We also share the concerns expressed by Members of
Congress, President Bush, and members of his administration
140
about the necessity of maintaining a secure, diverse, reliable, and

affordable electric energy supply.
We believe we can make progress on reducing carbon dioxide and
other greenhouse gas emissions without bankrupting the economy
or eliminating coal as a viable fuel supply. One of the key questions
I and my industry colleagues confront is how best to accommodate
the requirement for environmental improvements as we make busi-
ness decisions that involve billions of dollars and affect the lives
and livelihoods of hundreds of thousands of investors and employ-
ees.
The Clean Energy Group believes the best way to provide busi-
ness certainty on which to base these decisions is through an inte-
grated environmental strategy and a multi-pollutant approach that
includes carbon. The Clean Energy Group has developed a legisla-
tive proposal that would deliver significant reductions in power
plant emissions of nitrogen oxide, sulfur dioxide, and mercury, and
implement mandatory carbon dioxide reductions in a manner that
will not compromise the reliability, fuel diversity, or affordability
of the nations energy supply.
The legislation calls for mandatory emission caps to be achieved
on established timetables and use of emissions trading and other
cost-effective market-based compliance techniques that will allow
industry to meet the emission caps efficiently and at low cost.
I have attached a copy of the Clean Energy Groups legislative
proposal to my written testimony, and we look forward to dis-
cussing it with interested members and staff at any time. We be-
lieve the legislation will provide real and significant environmental
benefits. However, there is also a strong business rationale for an
integrated approach and for establishing a clear policy on carbon
reductions now.
Our industry needs to know now what the future environmental
requirements will be in terms of the amount of reductions and the
timetable. The issue boils down to one of business certainty for
both the electric power industry and the capital markets we turn
to for financing of new generation projects.
We dont want to confront a situation in which we are forced to
waste or put at risk large-scale investments predicated on one set
of assumptions, only to have the rules changed a few years down
the road. Our view is that the best and most prudent course of ac-
tion and the one that will foster investment in new energy tech-
nologies and the electric energy infrastructure our country needs is
a comprehensive program that establishes clear, unambiguous en-
vironmental targets and timetables over the next 15 years.
We also believe that such a program should be mandatory. If a
goal is to provide business certainty, our view is that only a man-
datory program in which all participants in the electric generating
industry are required to internalize the cost of making necessary
reductions will work. This is especially relevant in the highly com-
petitive wholesale power market in which even small cost differen-
tials can provide a material competitive advantage for those who
choose not to participate in a voluntary program.
Again, I am honored by the opportunity to make this statement
on behalf of my company and the Clean Energy Group, and I would
be happy to respond to your questions.
141
[The prepared statement of Mr. Cassidy follows:]

PREPARED STATEMENT OFFRANK CASSIDY, PRESIDENT AND CHIEF OPERATING
OFFICER, PSEG POWER LLC
Mr. Chairman and Members of the Committee, I am pleased and honored to ap-
pear before you this morning to represent my company, Public Service Enterprise
Group Incorporated (PSEG), and our coalition, the Clean Energy Group.
PSEG is a diversified energy holding company based in New Jersey with assets
and operations overseas as well as in the United States. The company, I head is
PSEG Power, a subsidiary of PSEG, and an independent power producer and energy
trading company. We have more than 17,000 megawatts of electric generating ca-
pacity in operation, construction, or advanced development and our energy trading
business is the 15th largest by volume in the country. PSEGs other subsidiaries in-
clude Public Service Electric and Gas Company (PSE&G), one of the nations largest
combined electric and gas utilities, and PSEG Global which develops and operates
energy production and distribution facilities internationally.
The Clean Energy Group members are Consolidated Edison Company, KeySpan
Energy, Northeast Utilities, Conectiv, Exelon Corporation, Northeast Utilities,
PG&E National Energy Group, Sempra Energy, and my company, PSEG.
Members of coalition share a number of significant attributes and principles:
We operate and are developing power plants in almost every region of the
United States.
We operate coal, gas, and oil-fired fossil-fueled generating plants and nuclear-
powered facilities.
We believe in responsible environmental stewardship.
We are committed to working cooperatively with the environmental community,
government, and other stakeholders to promote adoption of progressive policies
that provide meaningful environmental improvements on an economically sound
and sustainable basis.
There is no question the issues of environmental policy, climate change and car-
bon dioxide reductions present tremendous challenges to our industry. Members of
our coalition share the view that the scientific evidence on climate change has pro-
gressed to the point where prudent action on reducing greenhouse gas emissions is
warranted. We also share the concerns expressed by Members of Congress, Presi-
dent Bush, and members of his Administration about the necessity of maintaining
a secure, diverse, reliable, and affordable electric energy supply.
We believe we can make progress on reducing carbon dioxide and other green-
house gas emissions without bankrupting the economy or eliminating coal as a via-
ble fuel supply.
Our industry is in the process of fundamental change. My company, PSEG Power,
was created just about two years ago as a result of these changes. We own and oper-
ate generating facilities that were formerly part of an integrated, regulated utility
in New Jersey. We are now one of the largest unregulated independent power pro-
ducers in the U.S. with an aggressive growth plan that involves entering new mar-
kets and building new facilities.
One of the key questions I and my industry colleagues confront is how best to ac-
commodate the requirement for environmental improvements as we make business
decisions that involve billions of dollars and affect the lives and livelihoods of hun-
dreds of thousands of investors and employees.
The Clean Energy Group believes the best way to provide the business certainty
on which to base these decisions is through an integrated environmental strategy
and a multi-pollutant approach that includes carbon.
The Clean Energy Group has developed a legislative proposal that would deliver
significant reductions in power plant emissions of nitrogen oxide, sulfur dioxide, and
mercury, and implement mandatory carbon dioxide reductions in a manner that will
not compromise the reliability, fuel-source diversity, or affordability of the nations
electric energy supply.
The legislation calls for mandatory emissions caps to be achieved on established
timetables and use of emissions trading and other cost-effective, market-based com-
pliance techniques that will allow industry to meet the emissions caps efficiently
and at low cost.
Ive attached a copy of the Clean Energy Groups legislative proposal to my writ-
ten testimony. We would look forward to discussing it with interested Members and
staff at any time.
142
We believe the legislation will provide real and significant environmental benefits.
However, there also is a strong business rationale for an integrated approach and
for establishing a clear policy on carbon reductions now.
Our industry needs to know now what the future environmental requirements will
be in terms of the amount of reductions and the timetable.
The issue boils down to one of business certainty for both the electric power indus-
try and the capital markets we turn to for financing of new generating projects. We
dont want to confront a situation in which we are forced to waste or put at risk
large-scale investments predicated on one set of requirements only to have the rules
changed a few years down the road.
Our view is that the best and most prudent course of actionand the one that
will foster investment in new energy technologies and the electric energy infrastruc-
ture our country needsis a comprehensive, program that establishes a clear, un-
ambiguous environmental targets and timetables over the next fifteen years.
We also believe such a program should be mandatory.
Clean Energy Group companies have participated in a number of voluntary pro-
grams in the past that helped developed emissions trading protocols for ozone pre-
cursor pollutants. These programs have been useful tools for the industry. However,
if a goal is to provide business certainty, our view is that only a mandatory program
in which all participants in the electric generating industry are required to inter-
nalize the cost of making necessary reductions will work. This is especially relevant
in the highly competitive wholesale power market in which even small cost differen-
tials can provide a material competitive advantage for those who choose not to par-
ticipate in a voluntary program.
Again, I am honored by the opportunity to make this statement on behalf of my
company and the Clean Energy Group. We look forward to working with Congress
and the Administration to craft the policies under which our industry will make
substantial environmental progress while it fulfills its mission of providing a secure,
reliable, and affordable supply of electric energy. I would be happy to respond to
your questions.
CLEAN ENERGY GROUPS LEGISLATIVE PROPOSAL
107th CONGRESS
1st Session
Bill Number
To establish a national uniform multiple air pollutant regulatory program for the
electric power generation sector
IN THE HOUSE OF REPRESENTATIVES or

THE SENATE OF THE UNITED STATES
Date Introduced
Sponsor(s)
Referred to Name of Committee
A BILL
To establish a national uniform multiple air pollutant regulatory program for the
electric power generation sector
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled
SECTION 1. SHORT TITLE; TABLE OF CONTENTS

(a) SHORT TITLEThis Act may be cited as the Integrated Air Quality Planning
Act.
(b) TABLE OF CONTENTS
Section 1. Short Title; Table of Contents
Section 2. Findings and Purpose
Section 3. Definitions
Section 4. National Pollutant Tonnage Caps
Section 5. Implementation: Sulfur Dioxide (SO2) Program Revisions
143
Section 6. Implementation: Nitrogen Oxides (NOX) and Mercury Allowance
Trading Programs
Section 7. Implementation: Carbon Dioxide (CO2) Allowance Trading Program
Section 8. New Source Review Program Revisions
Section 9. Savings Provisions
SECTION 2. FINDINGS AND PURPOSE
(a) FINDINGSCongress finds that
(1) fossil fuel-fired power plants, consisting of plants fueled by coal, fuel oil,
and natural gas, produce nearly two-thirds of the electricity generated in the
United States;
(2) fossil-fuel fired power plants account for approximately two-thirds of the
total SO2 emissions, one-third of total NOX emissions, one-third of total CO2
emissions and are a leading source of anthropogenic mercury emissions in the
U.S.;
(3) many generating units have been exempt from emissions limitations appli-
cable to new units based on the expectation that over time these units would
be retired or updated with new pollution control equipment. However, many of
these units continue to operate and emit at relatively high rates;
(4) pollution from existing power plants can be reduced effectively through
adoption of modern technologies and practices;
(5) the electricity industry is being restructured with the objective of pro-
viding lower electricity rates and higher quality services to consumers;
(6) the full benefits of competition will not be realized if environmental impact
costs are not uniformly internalized;
(7) the ability of power plant owners to effectively plan for the future is im-
peded by the uncertainties surrounding future environmental regulatory re-
quirements that are imposed inefficiently on a piecemeal basis.
(b) PURPOSESThe purposes of this Act are
(1) to protect and preserve the environment and safeguard health by ensuring
that substantial emissions reductions are achieved at fossil fuel-fired generating
facilities;
(2) to greatly reduce the quantities of mercury, CO2, SO2, and NOX entering
the environment from the combustion of fossil fuels;
(3) to internalize the cost of protecting the values of public health, air, land
and water quality in the context of a competitive market in electricity;
(4) to assure fair competition among participants in the market in electric
power that will result from fully restructuring the electric industry;
(5) to provide a period of environmental regulatory stability for owners/opera-
tors of electric generating facilities for improved management of existing assets
and new capital investments;
(6) to achieve emissions reductions from electric generating facilities in a cost-
effective manner.
SECTION 3. DEFINITIONS
(1) ActAct means the Integrated Air Quality Planning Act.
(2) AdministratorAdministrator means the Administrator of the U.S. En-
vironmental Protection Agency.
(3) Affected unit, for the purpose of the tonnage caps in Section 4 and the
emission reduction program provisions under Sections 5, 6 and 7, shall have the
following meaning
(a) With respect to SO2, the term affected unit has the same meaning
as in Section 402 of the Clean Air Act.
(b) With respect to mercury, the term affected unit means a coal-fired
electric generating facility with a nameplate capacity greater than 25
megawatts that uses a combustion device primarily to generate electricity
for sale, and with respect to NOX and CO2, the term affected unit means
a fossil fuel-fired electric generating facility with a nameplate capacity
144
greater than 25 megawatts that uses a combustion device primarily to gen-
erate electricity for sale, including any unit that
(i) co-generates steam and electricity if it supplies more than one-
third of its potential capacity and more than 25 megawatts of electrical
output to the electric power grid;
(ii) serves a closed district heating and cooling system that, on an ag-
gregate basis, supplies more than one-third of its potential capacity and
more than 25 megawatts of electrical output to the electric grid.
(4) AllowanceThe term allowance means an authorization allocated by the
Administrator under this Act to authorize emissions during or after a specified
calendar year, as follows
(a) NOX allowance shall mean an authorization to emit one ton of NOX;
(b) SO2 allowance is defined at paragraph 5(b) of this Act;
(c) CO2 allowance shall mean an authorization to emit one ton of CO2;
(d) Mercury allowance shall mean an authorization to emit one pound of
mercury.
(5) Eligible electric power generating unitThe term eligible electric power
generating unit means incremental increases in generation (in megawatt
hours) relative to 1990 levels produced by nuclear generating units, and genera-
tion produced by renewable energy sources, as defined herein.
(6) Greenhouse gasThe term greenhouse gas or GHG means (a) carbon
dioxide, (b) methane, (c) nitrous oxide, (d) hydroflourocarbons, (e)
perflourocarbons and (f) sulfur hexaflouride.
(7) New unitFor the purpose of the allocation provisions under Sections 6
and 7, the term new unit means an affected unit that has not operated for
a sufficient period of time following commencement of operation to receive allo-
cations under the following provisions of this Act
(a) paragraph 6(c)(1) for the NOX and mercury provisions, and
(b) paragraph 7(c)(1) for the CO2 provisions.
(8) Renewable energy or renewable energy sourcesThe term renewable en-
ergy or renewable energy sources means electricity generated from wind, or-
ganic waste (excluding incinerated municipal solid waste), biomass (including
anaerobic digestion from farm systems and landfill gas recovery), hydroelectric,
geothermal, solar thermal, photovoltaic, fuel cells and other sources, all as des-
ignated by rule by the Administrator.
(9) SequestrationThe term sequestration means the action of sequestering
carbon, either through enhancing natural sinks (e.g., afforestation), or by cap-
turing the CO2 emitted from fossil fuel based energy systems and storing it in
geologic formations or the deep ocean, or converting it to benign solid materials
through biological or chemical processes.
SECTION 4. NATIONAL POLLUTANT TONNAGE CAPS

A new Title XII is added to the Clean Air Act entitled National Pollutant Caps for
the Electric Generating Sector comprised of the following provisions
(a) NITROGEN OXIDES (NOX)
(1) Annual Tonnage CapEffective January 1, 2008, the annual tonnage cap
for emissions of nitrogen oxides from affected units in the continental U.S. shall
be 2.11 million tons.
(b) SULFUR DIOXIDE (SO2)
(1) Annual Tonnage CapEffective January 1, 2008, the annual tonnage cap
for emissions of sulfur dioxide from affected units in the continental U.S. shall
be 4.45 million tons.
(c) CARBON DIOXIDE (CO2)
(1) Annual Tonnage Cap
(A) From January 1, 2008 until December 31, 2011, the annual tonnage
cap for emissions of CO2 from affected units in the U.S. shall be the amount
145
of emissions emitted from electric generating facilities in calendar year
2000, as determined by the Administrator.
(B) On and after January 1, 2012, the annual tonnage cap for emissions
of CO2 from affected units shall be 1.925 billion tons.
(d) MERCURY
(1) Annual Tonnage Cap
(A) For calendar years 2008-2011 (inclusive), the annual tonnage cap for
emissions of mercury from coal-fired generating units in the continental
U.S. shall equal a 50 percent reduction from baseline mercury emission lev-
els, as determined by the Administrator.
(B) For calendar year 2012, and each year thereafter, the annual tonnage
cap for mercury shall equal a 70 to 90 percent reduction from baseline mer-
cury emission levels, the exact percentage reduction to be determined by
the Administrator by January 1, 2004 based on the best scientific data
available at the time.
(e) REVIEW OF POLLUTANT CAPS
(1) The pollutant tonnage caps established under paragraphs 4(a), 4(b), 4(c)
and 4(d) shall remain in effect until [insert date 15 years from date of enact-
ment ].
(2) Not later than [insert date thirteen years from date of enactment] the Ad-
ministrator shall determine, based on air quality and cost considerations,
whether one or more of the national pollutant caps should be revised.
(3) If, based on the assessment conducted in accordance with paragraph
4(e)(2), it is determined by the Administrator that no revisions to any of the
pollutant caps are warranted, a notice of this determination, and the supporting
rationale, shall be published in the Federal Register.
(4) If, based on the assessment conducted in accordance with paragraph
4(e)(2), it is determined by the Administrator that revisions to one or more of
the national pollutant caps are warranted, a proposed rulemaking reflecting
such revisions shall be published in the Federal Register no later than [insert
date 13 years and 6 months from date of enactment]. A final rulemaking shall
be promulgated no later than [insert date fourteen years from date of enactment]
and the revisions to the pollutant cap(s) shall become effective no later than [in-
sert date fifteen years from date of enactment].
(5) Determinations made under this paragraph by the Administrator shall re-
main in effect for another 15-year period, wherein the review cycle established
under this paragraph shall be repeated (i.e., EPA will determine if the caps
need to be adjusted again by December 31, 2027; if not, the determination shall
be noticed in the Federal Register; if so, a proposed rule shall be published by
June 30, 2028; etc.).
(6) Notwithstanding the national pollutant caps established pursuant to this
section, emissions from individual sources may be ordered reduced by federal
or state authorities to address local air quality problems.
SECTION 5. IMPLEMENTATION: SULFUR DIOXIDE REDUCTION PRO-

GRAM REVISIONS
(a) REGULATIONSNot later than January 1, 2004, the Administrator shall pro-
mulgate revisions to its regulations implementing Title IV of the Clean Air Act as
deemed necessary to implement the provisions of this section.
Section 402 of the Clean Air Act is amended by striking paragraph (3) thereof and
inserting the following
(b) ALLOWANCEthe term allowance means an authorization, allocated to an
affected unit by the Administrator under this title, to emit, during or after a speci-
fied calendar year
(1) in the case of allowances allocated for calendar years 1995 through 2007,
one ton of sulfur dioxide; and
(2) in the case of allowances allocated for calendar year 2008, and each year
thereafter, an amount of SO2 determined by the Administrator and set forth in
the regulations promulgated pursuant to paragraph 5(a) that is consistent with
146
the new national sulfur dioxide tonnage cap established under paragraph
4(b)(1).
SECTION 6. IMPLEMENTATION: NITROGEN OXIDES AND MERCURY AL-
LOWANCE TRADING PROGRAMS
The Clean Air Act is amended by striking Section 407. A new Title XIII is added
to the Clean Air Act, entitled Nitrogen Oxides and Mercury Allowance Reduction
Program for the Electric Utility Sector comprised of the following provisions
mulgate regulations establishing an allowance trading program for NOX and an al-
lowance trading program for mercury for affected units in the continental U.S. Such
regulations shall establish the allowance system prescribed under this section, in-
cluding, but not limited to, the allocation, issuance recording, tracking, transfer and
use of allowances, and the public availability of all such information that is not con-
fidential. These regulations shall also establish the requirements governing affected
unit compliance with allowance limits, the monitoring and reporting of emissions
and the provisions for excess emission penalties.
(b) NEW UNIT RESERVESThe Administrator shall establish through rule-
making a reserve of NOX and of mercury allowances set aside for use by new af-
fected units.
(1) The Administrator in consultation with the Department of Energy shall
determine the size of the new unit reserves based upon projections of generation
output for new affected units
(A) not later than June 30, 2004, the new unit reserves for 2008 through
2012;
(B) not later than June 30, every five years thereafter, the new unit re-
serves for the next five-year control period.
(c) NOX AND MERCURY BUDGETS AND ALLOWANCE ALLOCATIONS
(1) Distribution to affected units
(A) NOX allowances shall be distributed to affected units
(i) not later than December 31, 2004, for calendar year 2008;
(ii) by December 31 of each calendar year after 2004, for the year
that begins 36 months thereafter.
(B) Subject to paragraph 6(b), the Administrator shall distribute NOX al-
lowances to affected units on a generation output basis in accordance with
the following formula
1.5 lbs NOX/megawatt hour, multiplied by the affected units highest
calendar year net electricity generation (in megawatt hours during the
most recent three-year period, on a rolling annual basis), divided by
2000 lbs/ton.
(C) Subject to paragraph 6(b), the Administrator shall distribute mercury
allowances to affected units on a generation output basis in accordance with
the following formula
[0.0000227 lbs mercury/megawatthour, multiplied by the affected units
highest calendar year net electricity generation (in megawatt hours dur-
ing the most recent 3 year period, on a rolling annual basis).]
If total allocations based on this formula exceed or fall short of the applica-
ble caps specified in Section 4 minus the new unit reserves for that year,
allocations to affected units will be adjusted on a pro rata basis to equal
the applicable caps specified in Section 4.
(D) An allowance shall not be considered a property right. Notwith-
standing any other provision of law, the Administrator may terminate or
limit an allowance.
(E) A distribution of allowances by the Administrator under paragraph
6(c)(1) shall not be subject to judicial review.
(2) Distribution to new affected units
(A) The Administrator shall promulgate regulations that establish a
methodology for distributing allowances to new affected units.
147
(B) The number of allowances available to a new unit shall be based on
actual generation output times the permitted emission rate.
(d) NOX AND MERCURY ALLOWANCE TRANSFER SYSTEM
(1) Use of AllowancesThe regulations promulgated pursuant to this section
shall
(A) prohibit the use (but not the transfer in accordance with paragraph
6(d)) of any allowance before the calendar year for which the allowance is
allocated;
(B) provide that unused allowances may be carried forward and added to
allowances allocated for subsequent years;
(C) provide that such allowances may be transferred by the person to
whom allocated or to any other person. Any person to whom such allow-
ances have been transferred may use the allowances in the control period
for which the allowances were allocated or in a subsequent control period
to demonstrate compliance with paragraph (6)(e)(i) or may transfer such al-
lowances to any other person for such purposes.
(2) Certification of TransferA transfer of an allowance shall not be effective
until a written certification of the transfer, authorized by a responsible official
of the person making the transfer, is received and recorded by the Adminis-
trator.
(3) Permit RequirementsAn allowance allocation or transfer shall, upon re-
cording by the Administrator, be considered a part of each units operating per-
mit requirements, without a requirement for any further permit review or revi-
sion.
(e) COMPLIANCE AND ENFORCEMENT
(1) Compliance With Allowance LimitsFor each calendar year beginning
after December 31, 2007, the operator of each affected unit shall surrender to
the Administrator a number of allowances for NOX equal to the total tons of
NOX emitted by that unit during the calendar year, and a number of allowances
for mercury equal to the total pounds of mercury emitted by that unit during
the calendar year.
(2) Monitoring SystemThe Administrator shall promulgate regulations re-
quiring the accurate monitoring of the quantities of NOX and mercury that are
emitted at each affected unit.
(3) Reporting
(A) In generalNot less than quarterly, the owner or operator of an af-
fected unit shall submit NOX and mercury monitoring reports to the Ad-
ministrator.
(B) AuthorizationEach report required under paragraph 6(e)(3)(A) shall
be authorized by a responsible official of the affected unit, who shall certify
the accuracy of the report.
(C) Public ReportingThe Administrator shall make available to the pub-
lic, through one or more published reports and one or more forms of elec-
tronic media, unit-specific emission data for each affected unit for NOX and
mercury.
(4) Excess EmissionsThe owner or operator of any affected unit that emits
NOX or mercury in excess of the allowances the owner or operator holds for use
for the unit for the calendar year shall be liable for the payment of an excess
emissions penalty, and shall be liable to offset the excess emissions by an equal
amount in the following calendar year or such other period as the Administrator
shall prescribe. The excess emissions penalty for NOX shall be calculated on the
basis of the number of tons emitted in excess of the total number of allowances
held, multiplied by $5,000, indexed by inflation under rules promulgated by the
Administrator. The excess emissions penalty for mercury shall be calculated on
the basis of the number of pounds emitted in excess of the total number of al-
lowances held, multiplied by $10,000, indexed by inflation under rules promul-
gated by the Administrator.
148
SECTION 7. IMPLEMENTATION: CO2 ALLOWANCE TRADING SYSTEM
A new Title XIV is added to the Clean Air Act entitled Greenhouse Gas Reduction
Program for the Electric Utility Sector comprised of the following provisions
mulgate regulations establishing a CO2 allowance trading program for affected units
and eligible electric power generating units operating in the U.S. Such regulations
shall establish the allowance system prescribed under this section, including, but
not limited to, the allocation, generation, issuance recording, tracking, transfer and
use of CO2 allowances, and the public availability of all such information that is not
confidential. These regulations shall also establish the requirements governing af-
fected unit compliance with allowance limits, the monitoring and reporting of emis-
sions and the provisions for excess emission penalties. In addition, the regulations
adopted by the Administrator under this section shall establish standards, guide-
lines and procedures governing the creation, certification and use of additional al-
lowances requested under the flexibility mechanism provisions of paragraph 7(d) of
this Act.
(b) NEW UNIT RESERVEThe Administrator shall establish through rule-
making a reserve of CO2 allowances set aside for use by new affected units.
(1) The Administrator in consultation with the Department of Energy shall
determine the size of the new unit reserve based upon projections of generation
output for new affected units
(A) not later than June 30, 2004, the new unit reserve for 2008 through
2012;
(B) not later than June 30, every five years thereafter, the new unit re-
serve for the next five-year control period.
(c) CO2 BUDGETS AND ALLOWANCE ALLOCATION
(1) Distribution of CO2 allowances
(A) CO2 allowances shall be distributed
(i) not later than December 31, 2004, for calendar year 2008;
(ii) by December 31 of each calendar year after 2004, for the year
that begins 36 months thereafter.
(B) The Administrator shall distribute CO2 allowances to affected units
and eligible electric power generating units in proportion to each such units
share of the total electric power generation attributable to the generation
of affected units and eligible electric power generating units. The distribu-
tion shall not exceed the CO2 tonnage budget established in paragraph
(4)(c) minus the new unit reserve established under paragraph (7)(b).
Alternative allocation option:

(B) The Administrator shall distribute CO2 allowances to af-
fected units and non-fossil fired generating units serving the
grid, including accepted energy efficiency projects that reduce
electricity demand from the grid. CO2 allowances shall be
distributed in proportion to each units or projects share of
the total electric power generation and, in the case of energy
efficiency projects, accepted energy efficiency projects con-
tribution to reductions in electricity demand. The distribution
shall not exceed the CO2 tonnage budget established in para-
graph (4)(c) minus the new unit reserve established under
paragraph (7)(b).
For this section, the term accepted energy efficiency project
means any end use energy efficiency projects as defined by
the Independent Review Board as referenced in subsection
(d) of this section.
(C) In determining a units share of total electric power generation, the

Administrator shall consider the units highest utilization level, in mega-
149
watt hours, during the most recent three-year period, on a rolling annual
basis.
(D) A CO2 allowance shall not be considered a property right. Notwith-
standing any other provision of law, the Administrator may terminate or
limit a CO2 allowance.
(E) A distribution of CO2 allowances by the Administrator under para-
graph 7(c)(1) shall not be subject to judicial review.
(2) Distribution to new affected units
(A) The Administrator shall promulgate regulations that establish a
methodology for distributing CO2 allowances to new affected units.
(B) The amount of CO2 allowances available to a new unit shall be based
on actual generation output times the permitted emission rate.
(d) COMPLIANCE FLEXIBILITY MECHANISMS
(1) Independent Review BoardAn Independent Review Board shall be estab-
lished to assist EPAs implementation of the flexibility mechanisms provided for
under this section. Requirements related to the creation, composition, duties, re-
sponsibilities and other aspects of the Independent Review Board shall be in-
cluded in the regulations developed by the Administrator under paragraph
(7)(a).
(A) The Board shall be comprised of 11 membersone representative of
EPA (who shall also serve as chairperson of the Board), one representative
from the Department of Energy, three representatives from state govern-
ment, three representatives from the electric generating sector and three
representatives from the environmental community. The Review Board
shall report to the Administrator, who shall provide staff and other re-
sources to the Board as necessary. The Administrator will respond promptly
to requests for support.
(B) The Board shall promulgate guidelines for certifying the additional al-
lowances. The guidelines shall be promulgated by (i) January 1, 2003 for
allowances generated pursuant to paragraph C(i) below, and (ii) January 1,
2005 for allowances generated pursuant to paragraph C(ii). The Board shall
be responsible for periodically updating these guidelines as appropriate.
Placeholder: Pending the outcome of analysis of the economic

impacts of the unconstrained creation of off-site and off-sector
allowances, CEG will determine whether there should be lan-
guage placing constraints in this section.
(C) The Board shall be responsible for certifying additional allowances re-
quested, pursuant to the following
(i) For actions completed on or after January 1, 1990 and prior to
January 1, 2008, allowances for early action, limited to 10 percent of
the tonnage cap of 1.925 billion tons established in Section 4, will be
granted for the following types of projects
(a) domestic and international projects that effectively sequester
carbon;
(b) projects reported under Section 1605 of the Energy Policy Act
of 1992;
(c) domestic and international projects that reduce greenhouse
gas emissions.
(ii) For actions completed on or after January 1, 2008, allowances will
be granted for the following types of projects
(a) domestic and international projects that effectively sequester
carbon;
(b) CO2 reductions from greenhouse gas sources not meeting the
definition of an affected unit.
150
(iii) For CO2 reductions achieved from investments in new renewable
energy projects and for investments in energy efficiency projects, allow-
ances will be granted according to the following guidelines
(a) Between January 1, 2002 and December 31, 2007, one allow-
ance shall be granted to applicants for every $15 invested in a cer-
tified new renewable energy project or efficiency project.
(b) Between January 1, 2007 and December 31, 2014, one allow-
ance shall be granted to applicants for every $25 invested in a cer-
tified new renewable energy project or energy efficiency project.
(c) No CO2 allowances will be granted for investments made in
renewable energy projects or energy efficiency projects after De-
cember 31, 2014.
(2) The Issuance and Use of Allowances
(A) The Administrator shall make available allowances to projects that
receive certification by the Independent Review Board. The allowance shall
be in addition to the tonnage budget set forth in paragraph 4(c).
(B) The regulations promulgated pursuant to paragraph 7(a) shall allow
sources to purchase and use CO2 allowances that are traded under other
domestic or internationally recognized CO2 reduction program and to use
these allowances as a compliance option for the domestic program created
by this Act.
(e) CO2 ALLOWANCE TRANSFER
(1) Use of CO2 AllowancesThe regulations promulgated pursuant to this
section shall
(A) prohibit the use (but not the transfer in accordance with paragraph
7(e)(2)) of any CO2 allowance allocated by the Administrator before the cal-
endar year for which the CO2 allowance is allocated;
(B) provide that unused CO2 allowances allocated by the Administrator
may be carried forward and added to CO2 allowances allocated for subse-
quent years;
(C) provide that such allowances may be transferred by the person to
whom allocated or by any other person. Any person to whom such allow-
ances have been transferred may use the allowances in the control period
for which the allowances were allocated or in a subsequent control period
to demonstrate compliance with paragraph (7)(f)(2), or may transfer such
allowances to any other person for such purposes;
(D) provide that allowances originally allocated and transferred pursuant
to this section may be transferred into any other market-based CO2 emis-
sions trading program approved by the President and implemented pursu-
ant to regulations developed by the Administrator or other federal agency.
(2) Certification of TransferA transfer of a CO2 allowance shall not be effec-
tive until a written certification of the transfer, authorized by a responsible offi-
cial of the person making the transfer, is received and recorded by the Adminis-
trator.
(3) Permit RequirementsA CO2 allowance allocation or transfer to an af-
fected unit shall, upon recording by the Administrator, be considered a part of
each affected units operating permit requirements, without a requirement for
any further permit review or revision.
(f) COMPLIANCE AND ENFORCEMENT
(1) Compliance with the CO2 cap can be achieved as follows
(A) From 2008 through 2014 inclusive, compliance may be demonstrated
though the use of CO2 allowances distributed under paragraph 7(c) or 7(d).
(B) After 2014, compliance may be demonstrated though the use of CO2
allowances distributed under paragraph 7(c), or any internationally recog-
nized flexibility mechanisms in place at the time.
(2) Compliance With Allowance LimitsFor each calendar year beginning
after December 31, 2007, the operator of each affected unit shall surrender to
151
the Administrator a number of allowances for CO2 equal to the total tons of CO2
emitted by that unit during the calendar year.
(3) Monitoring SystemThe Administrator shall promulgate regulations re-
quiring the accurate monitoring of the quantity of CO2 that is emitted at each
affected unit.
(4) Reporting
(A) In generalNot less than quarterly, the owner or operator of an af-
fected unit shall submit a report on CO2 emissions from the unit.
(B) AuthorizationEach report required under paragraph (A) shall be au-
thorized by a responsible official of the generating unit, who shall certify
the accuracy of the report.
(C) Public ReportingThe Administrator shall make available to the pub-
lic, through one or more published reports and one or more forms of elec-
tronic media, CO2 emissions data for each affected unit.
(5) Excess EmissionsThe owner or operator of any affected unit that emits
CO2 in excess of the allowances the owner or operator holds for use for the unit
for the calendar year shall be liable for the payment of an excess emissions pen-
alty, and shall be liable to offset the excess emissions by an equal amount in
the following calendar year or such other period as the Administrator shall pre-
scribe. The excess emissions penalty shall be calculated on the basis of the num-
ber of tons emitted in excess of the total number of allowances held, multiplied
by $100, indexed by inflation under rules promulgated by the Administrator.
SECTION 8. NEW SOURCE REVIEW PROGRAM REVISIONS

Section 165 of the Clean Air Act is amended by the following
The Administrator shall promulgate revisions to its New Source Review (NSR) regu-
lations, including its Prevention of Significant Deterioration (PSD) requirements.
(a) The regulations shall revise the NSR/PSD applicability criteria for affected
units under either Section 4(a) or (b) such that
(1) Physical changes or changes in the method of operation at affected units
shall not be subject to the NSR/PSD regulations and are not subject to EPA ap-
proval if
(A) the project does not meet the definition of the term reconstruction
as defined in 40 CFR 60.15, or
(B) the project does not result in an increase of the affected units emis-
sion rate on a lbs/megawatt hour basis.
(2) Projects that do not meet the criteria set forth in paragraph 8(a)(1) shall
be subject to the existing NSR/PSD applicability provisions and general require-
ments.
(b) The regulations shall continue to apply NSR/PSD to proposed new units, with
the following changes
(1) New sources locating in non-attainment areas shall not be required to ob-
tain emission offsets.
(2) The definition of Lowest Achievable Emission Rate (LAER) technology
shall be revised to allow costs to be considered in the determination of what
constitutes LAER, such that new sources will not be required to install LAER
technology if the cost exceeds a threshold amount (in dollars per ton) to be de-
termined by the Administrator. This LAER cost threshold amount may not be
less than twice the amount of the BACT cost guideline.
SECTION 9. SAVINGS PROVISIONS

Except as specifically provided herein, nothing in this section
(1) affects the permitting, monitoring and enforcement obligations of the Ad-
ministrator under the Clean Air Act (42 U.S.C. 7401 et seq.) and the remedies
provided thereunder;
(2) affects the requirements and liabilities of an affected facility under the
Clean Air Act;
152
(3) requires a change in, affects, or limits any state law regulating electric
utility rates or charges, including prudency review under state law; or
(4) precludes a state or political subdivision of a state from adopting and en-
forcing any requirement for the control or abatement of air pollution, except
that a state or political subdivision may not adopt or enforce any emission
standard or limitation that is less stringent than the requirements imposed
under the Clean Air Act.
Senator KERRY. Well, thank you very much. I want to thank all
four of you. We had some very helpful and very important testi-
mony, each point of view contributing significantly to the way in
which we could start to think about this constructively.
Mr. Cassidy, let me just ask you quickly since you just finished.
Vice President Cheney has said that we need to build 1,300 electric
power plants over the next 20 years. Yet last year the Department
of Energy reported that energy efficiency in renewable power
sources could meet 60 percent of the nations need for new power
plants.
What is PSEGs view with respect to these differing points of
view? What is your view?
Mr. CASSIDY. I cant, in my head, Mr. Chairman, do the math as
between whether 60 percent of requirements can be met by renew-
ables and efficiency in new power plants. I would say, as you said
earlier today, that an approach that is going to work has to empha-
size new technology, efficiency standards, and the construction of
new environmentally efficient plants replacing older inefficient
plants.
Senator KERRY. Well, is PSEG diversifying into renewable
power?
Mr. CASSIDY. We are always on the lookout for new investments
that make sense. We have done quite a bit of work on landfill and
natural gas projects in the state of New Jersey. Other members of
our coalition have made similar investments.
Senator KERRY. What was your reaction to the preceding panel,
to both the fuel cells and wind power discussions?
Mr. CASSIDY. My reaction is that they arethat both wind power
and fuel cells will need to be a part of solving the carbon problem
that we are trying to solve. I dont believe that efficiency and re-
newables alone can be the total solution.
Senator KERRY. Mr. Hawkins, what is your reaction to that?
Mr. HAWKINS. Well, I think the administration is really a pris-
oner of its own assumptions. They started with adding up the cur-
rent supply, and then they looked at forecasts of what future de-
mand for total energy might beand then the next step they took
was where they went wrong. Basically you can fill that gap be-
tween supply and demand with either clean resources or dirty re-
sources, and they basically assumed that it was all going to have
to be filled with conventional dirty resources, more fossil, more nu-
clear, and they didnt look at the option of filling as much of that
gap with clean resources.
The analysis that did look at the clean resource option was the
Clean Energy Futures report by the Department of Energy, and
what that analysis indicated (using the metric that Vice President
Cheney uses of 1,300 power plants)it indicated that of those
1,300 power plants, 600 could be avoided by improving efficiency,
153
so that you would get the same energy services, but you wouldnt
need to build as many power plants to deliver those energy serv-
ices.
Two hundred additional of those power plants would be fueled by
renewable resources rather than fossil resources. It is that dif-
ference in approach that produces a different result. You can start
by filling up the gap with dirty resources and then say, Oh, lets
add something in on efficiency and renewables, so that we can say
we have a balanced package, or whether you prioritize it the other
way and say, OK, lets see how much we can deliver with the clean-
est resources first, and then meet remaining needs with the dirtier
resources.
Senator KERRY. And when you talk about those 200 renewable
plants, is that based on current rate of deployment of existing tech-
nology, or is that looking down the road?
Mr. HAWKINS. No. That is based on the adoption of policies that
would develop additional renewal resources, create tax incentives,
create performance objectives, and otherwise provide more incen-
tives for efficiency and renewable energy. It is also influenced by
the adoption of policies that would provide an economic reward for
renewable energy resources, specifically caps on carbon emissions
in the electric sector.
If you put a cap on carbon emissions from the electric sector, as
Frank Cassidy has indicated, you send a signal to the market. You
make it economically more attractive at the margin for a power
plant developer to build a power plant that runs on renewable en-
ergy rather than one that runs on fossil energy, because the renew-
able fuel power plant wont have to get carbon permits from the
market.
Senator KERRY. Now, with respect to what you heard in the dis-
cussion I had with Dr. Evans at the very beginning, he made a
point of separating what he can recommend in the context of the
realities of the science, versus making a policy judgment. What is
it that compels you, based on the science youve seen, to make the
judgment you make that you need to move authoritatively to deal
with this now?
Mr. HAWKINS. Well, it is this momentum of the system, the fact
that we are inevitably and irretrievably building up carbon con-
centrations in the atmosphere. We know those increased carbon di-
oxide concentrations are linked to increasingly higher risks of cli-
mate change. We know that those potential climate changes are
ones that havent been experienced in the evolutionary history of
the living systems that surround all of us. They certainly havent
been experienced in the history of human societies that have devel-
oped, and we know that we are sticking ourselves and our children
with the consequences of those things.
So from a standpoint of prudent behavior, if we dont understand
the magnitude of the harm that we may be inflicting and we know
that we are creating centuries worth of harm by continuing on this
current pace, we are leaving behind options to reduce the risk. Our
current approach is a gamble and that is a winning strategy only
if you are sure you are going to win. You know, if you have got a
flip of the coin, if you want to maximize your income, if you are
sure you are going to win, you bet all your assets on heads. And
154
if you are sure it is going to be heads, but that is only a winning

strategy if you are sure it is heads.
Now, is there reason to believe the effects of increasing carbon
dioxide concentrations will be trivial or beneficial? We have no
basis for believing that at all, and we shouldnt be betting our
economies on that assumption.
Senator KERRY. Well, isnt it, in fact, more than that. You do not
have a basis for not knowing it wont be beneficial, but you have
a basis for knowing it is, in fact, going to be negative, isnt it?
Mr. HAWKINS. All of the plausible information is that these will
be harmful effects. All of the analyses that have been done say that
the higher probability outcome of these increased concentrations is
to produce climate changes that are not going to be beneficial to
the planet as a whole, are going to be highly detrimental to lots
of places, lots of ecosystems, lots of people. Unfortunately, the poor-
est people in the world may suffer the most, because they are least
able to adapt and because they are living in fairly extreme cir-
cumstances to begin with.
So, yes. All of these factors point to the need for action to reduce
emissions. My attempt was to be extremely generous to the other
sides premises in answering your question.
Senator KERRY. I see. In other words, you are just leaving it out
there. Fair enough. I understand. I want to ask Ms. Claussen the
same thing, but let me just ask you very quickly, Mr. Hawkins, be-
fore I do. In reading the energy policy of President Bush, he sug-
gests the answer is in voluntary action, noting that the carbon in-
tensity of the U.S. economy, quote, declined 15 percent during the
1990s. And I dont understand that. Last year, U.S. carbon emis-
sions increased 2.7 percent in that 1 year alone. Can you address
that discrepancy?
Mr. HAWKINS. The rate of carbon emissions per unit of gross na-
tional product went down modestly during the last decade. Unfor-
tunately, the atmosphere really doesnt care about that. What the
atmosphere cares about is the tons of emissions, and the tons of
emissions went up by 16 percent.
Senator KERRY. So in other words, a game is being played essen-
tially in the way in which it is being reported.
Mr. HAWKINS. Yes. The relevant environmental statistic is how
much did the tons of pollution go up, and the tons of carbon pollu-
tion from the U.S. economy went up by 16 percent.
Senator KERRY. Ms. Claussen, did you want to comment on the
previous question asked? If you didnt, I do have a question I want-
ed to ask you.
Ms. CLAUSSEN. I did, because I thought David Hawkins was
being so conservative. I think if you look at the results of the Inter-
governmental Panel on Climate Change, if you look at the report
from the National Academy that the President asked for, if you
look at all the reports that we have done using, I think, some of
the best scientists in this country, looking at environmental im-
pacts in this country, I think there is no question that we are talk-
ing about something that will have negative environmental im-
pacts, whether it is sea level rise or ecosystem destruction or ef-
fects on water resources or effects on agriculture.
155
And I think it is not only prudent but it is really important that

we figure out how to reduce our emissions of greenhouse gases and
how to sequester those that we do put up there, and I think we
should use every tool that we can. Whether it is energy efficiency
or it is new technologies or it is new less-carbon-intensive power
plants or whether it is carbon sequestration, it seems to me that
all the tools in the tool box are ones that ought to be used.
Senator KERRY. Now, can you share with the Committeeyou
have been a leader in trying to bring corporate leaders, CEOs, to
the table, and, we keep being given, I think, a false presentation
of this entire problem, suggesting such draconian negative impacts
on business and the economy, et cetera.
But on the other hand, you have corporations and industry lead-
ers who have come together with you to take action as part of the
Pew Centers Business Environmental Leadership Council. Thirty-
three of the largest and most successful U.S. corporations have
stated that the Kyoto agreement is a first step in addressing cli-
mate change, and, in fact, more must be done.
What is it that your corporations see? Maybe you would say who
they are, what are they seeing, and why do they feel compelled to
move, while others are somehow trying to avoid this and go in a
different direction?
Just share your experience with us.
Ms. CLAUSSEN. Sure. let me first say thatI am happy to say
that it is now 36 rather than 33, because I think we are continuing
to add companies who share the view that the science is sufficient
to take some action, and
Senator KERRY. What kind of companies? What are you talking
about?
Ms. CLAUSSEN. Well, let me give you some ideas. I mean, we
have got aluminum companies like ALCOA. We have electric gen-
erators like American Electric Power and Cinergy and Pacific Gas
and Electric and Wisconsin Energy. We have got aircraft companies
like Boeing, United Technologies and LockheedMartin. We have
got cement companies like Holnam and California Portland Cement
Co. We have got forest products companies like Georgia Pacific and
Weyerhauser; appliance companies like Whirlpool and Maytag,
Intel and IBM. So, I mean, it is a real range among these 36. We
cover almost all sectors. We have even got a diesel engine manufac-
turer, Cummins, and obviously DuPont and companies like that.
It is a real mix, and I think they have come together, one, be-
cause they think there is sufficient science; two, because they think
they can do something about it, and 16 of these companies have al-
ready set internal targets to reduce their emissions and put in
place programs to do it, and because they think there is a real need
for public policy to help move this in the right direction.
And I think if you look at what they are doing, these are not fool-
ish companies. These are companies who are in business to make
a profit, who want to look ahead to what the world is going to be
like in ten or twenty or thirty years from now, and who want to
be there with the new technologies and the new systems, and who
are trying everything out right now as they get ready for this, be-
cause they think it is something that has to be done.
156
And so, I mean, sure there are companies who are on the other
side of this. I mean, we have got some oil companies, but there are
oil companies who have a different point of view. I think these are
the most forward-looking companies, and I think most of those who
are, quote, on the other side, end of quote, are sort of worried about
what happens to them tomorrow, and there are legitimate issues
about what happens to them tomorrow. If you are a coal company,
you may wonder.
But I have to say that we have now got a big mining company,
a global mining company, with substantial coal resources in the
United States, and they think this is a serious problem, that some-
thing needs to be done, and they agree with us that we need some
kind of a mandatory program, and so even companies who mine
coal, let alone burn it, because we have got some of those, too, be-
lieve that something has to be done here.
Senator KERRY. Dr. Sandor, you have been waiting patiently.
Dr. SANDOR. Yes. To make one point, the purpose of a market is
really to help you understand the winners and losers and not to
pick them. That is the whole purpose of the debate. The question
of renewables is very easy to answer once you price carbon. For ex-
ample, at the low end of the scale of current forecasts, that is, as
low as $20 per ton carbon, you change the dynamics, and you
would probably get rid of all the landfill methane leakage in the
United States.
Some economists are saying carbon prices may be $200 a ton. At
$200 a ton, you basically would turn the U.S. agricultural sector
entirely into sequestration and add $60 billion in net farm income.
The best step we can take is to implement and to get those num-
bers. The actors can take advantage of the investment opportuni-
ties. We could avoid policies which subsidize a particular tech-
nology because the market will, indeed, reveal to you what farmers
should be doing, what solar power companies should be doing.
And with all due respect, comments about support for action on
global warming can really be implemented much better by joining
an exchange, putting a cap-and-trade system in place, and exe-
cuting and informing the debate, and that is the critical part.
There is far too much talk about the subject and no action. The ac-
tion and activity of markets will bring you the information that one
needs to make the decisions.
So I just dont get it. We talk about it. I think the companies that
have bought into the climate exchange are going to do something.
They are actually going to do it. They are not going to say, We
worry about global warming. They are going to talk and imple-
ment. Those that join are going to do something and take a positive
action. The talk doesnt help us in the debate. We have got to be-
come numerate and not just literate.
Senator KERRY. Senator Brownback.
STATEMENT OF HON. SAM BROWNBACK,
U.S. SENATOR FROM KANSAS
Senator BROWNBACK. That is, I think, an excellent comment, Dr.
Sandor. One of our former colleagues that was here has commented
to me previously that until we find a way to measure something,
we dont really know how to change it. We have got to be able to
157
put a quantifiable figure on it, and then we can move from that
point in time. And I think that is a good way of looking at it.
As I understand the panel, if I have heard your testimony cor-
rect, you all support some sort of trading systemand from that,
then, to a cap-and-trading system. Is that correct? Dr. Sandor, in
particular, I want to understand this. Is that your position, that
you feel like we should have a mandatory, federally set capping
system, then the trade from that?
Dr. SANDOR. Yes. The system that we have implemented is a cap-
and-trade system.
Senator BROWNBACK. OK. So everybody on the panel does sup-
port some form of cap-and-trade type of system. Dr. Sandor, to
move your concept forward, what sort of Federal actions would be
required? You would have to set a cap and then I presume some
form of measurement where there is a definable measurement that
is traded, or can the marketplace establish that?
Dr. SANDOR. The Chicago Climate Exchange is voluntary, so in
the absence of a mandated cap, there is a significant amount of
help that you can give us. You can give us an allowance tracking
system; measurement help for companies in the industrial sector;
the power sector; and in the soil sequestration. Anything that will
facilitate the measurement process and develop an inventory level
of emissions and offsets and how they occur wil help the market.
You can help us in terms of distributing educational information
to the agricultural community. For example, options for changes in
tillage practices and how they impact soil sequestration, so we can
take advantage and add another crop for farmers.
You can, in fact, help support education and work on verification.
Things like the Jet Propulsion Laboratory, which is doing flyovers
with radar and other technologies to measure forests with satellite
sensing systems. All these are new technologies, by the way, which
are exportable. I think it is amusing that we have been involved
in three carbon trades. One is a reforestation project of the Salish
and Kootenai tribes in Montana. Another is landfill gases through-
out the United States, and a third one is the Nuon trade. In all
cases, American companies exported their environmental services
and credits abroad. I find that an interesting anecdotal note.
So you could give us the verification skills, the monitoring skills,
the tracking, and most importantly, you can give companies who
trade some baseline protection, that is, credit for early action. This,
to me, is a key driver, and so
Senator BROWNBACK. Lets expand that. By credit for early ac-
tion, you are saying that if they take action now, they will be given
credit for this, under any sort of regime that follows.
Dr. SANDOR. Yes.
Senator BROWNBACK. National or international.
Dr. SANDOR. Yes. And these companies now are drivers. they are
motivated to join this exchange for several reasons. One of them,
there are great states like Massachusetts that are already imple-
menting a cap-and-trade program, so there will be state efforts.
And in the West, there are also some efforts. There is a Danish
program. There is a UK program coming next year. All of the com-
panies that may comply as multi-nationals should be protected or
given credit for any action they take now, in spite of the fact that
158
there is no mandate, so we can encourage them to continue to do

this.
Senator BROWNBACK. Mr. Hawkins, if we could, or any other
panelist if you would like to respond to this, it seems to me if we
go toward a cap-and-trade type system, that it answers a lot of the
questions that you have put forward of moving us toward renew-
ables and carbon sequestration, because you put an environmental
cost onto carbon. It seems to me, rather than going through a num-
ber of tax credits, that you are just better off putting in place a
market mechanism here, and letting the market then sort those
factors out.
How would you respond to that?
Mr. HAWKINS. Well, I think I would respond that there unfortu-
nately is often a difference between the theoretical ideal and what
Congress is actually able to legislate, and my hunch is that this
Congress is probably not going to legislate a cap at a level that is
going to be sufficient to send a signal to all sectors of the economy,
that this is a serious effort. I certainly hope that this Congress will
do so, but I think that we need a more robust and diverse portfolio
approach politically to this question.
There are a number of techniques which can enjoy broad support
in Congress that would apply differently to different sectors, and
I think that is the principal value of moving forward with some tax
incentive programs, with some sector-specific programs like the
CAFE standards for the vehicle sector, and with a cap-and-trade
program for the electric sector. It is a mix of strategies. It allows
members to mix and match in terms of their own policy preferences
and needs, and still gets the job done. It aint perfect; it aint the
theoretical ideal, but that doesnt often happen in this town.
Senator BROWNBACK. What if you are able to put forward, Mr.
Hawkins or Ms. Claussen, a system where you were able to just
simply bank greenhouse gas credits? Something that could get
through in your more practical model of Congress, a system of al-
lowing companies to take credit for early action at this point in
time?
Ms. CLAUSSEN. Let me try to answer that a little bit. I think that
is a very important first step, because some of these companies
have actually started to do some really terrific things, and I think
it is really important that they not be penalized for the things that
they have done. In fact, you want them to continue doing it, and
you want others to do it as well, so putting in some kind of baseline
protection, some kind of recognition for what they have done, some
kind of credit for early action, I think, is really important.
But in the end, I think what you need is some combination of
carrots and sticks. I think you do need some incentives to move the
technology. I think you do want to have some kind of a mandatory
cap. I dont think it has to be that stringent when you are getting
started. I think you can put something in place that starts to send
the right signals and that gradually over time becomes more and
more stringent.
So, you know, the idea of voluntary versus mandatorymanda-
tory doesnt mean so stringent that it breaks the bank. It just
means something that is real and something that is spread across
the country, not just in a few people who actually choose to do it.
159
So I am sort of favorably inclined toward something that maybe is

relatively modest, but something that sort of puts in place the right
things to get us moving. And I think once we start moving, we will
find that we can really move pretty fast and pretty far.
Senator BROWNBACK. Dr. Sandor, you wanted to respond.
Dr. SANDOR. Yes. I would respectfully disagree with the com-
ments about a variety of regulatory approaches and this bodys
ability to pass legislation. I have a great deal of faith in this body,
the Senates ability to do it. I think the SO2 program is a perfect
example. The same sorts of criticisms were leveled at it. It wasnt
stringent; it only had 100-plus facilities; it was terrible; it was a
camel, which is a horse designed by a committee; it wasnt ever
going to fly, and it wasnt going to work.
This past year, the total cost of the programand it is in its sec-
ond, more stringent phase, as Ms. Claussen indicated, which was
supposed to be the back-breaker of U.S. industry, cost $2 billion
per year, and the reduced medical costs associated with lung dis-
ease alone were $12$40 billion per year. This was called a terrible
program that the Senate designed; some said it would never work,
but now we know all of the social benefits are there, and all of the
economics are there. So please keep at it, gentlemen.
Senator BROWNBACK. Yes, Mr. Hawkins.
Mr. HAWKINS. I wanted to followup to your earlier question, but
first let me be sure to say that I was one of the strong supporters
of the 1990 acid rain legislation, both on its introduction and its
passage, and I think it has
Senator BROWNBACK. You picked a good horse.
Mr. HAWKINS. It has been a great success. On the question of the
early action credits, I want to flag a concern that adopting an early
action credit policy without a cap invites strategic game-playing. It
invites the kind of problems we have seen with the existing reg-
istry of the Department of Energy, the 1605(b) program where peo-
ple basically create their own baselines to maximize the number of
credits in their account. This in turn can establish, in effect, a lien
on future policy decisions, because you have all these entitlement
holders, and you havent made a policy to actually limit carbon
emissions.
The dynamic changes in the right direction if you have an early
action credit policy combined with a cap. So, for example, if we
adoptif we enact S. 556, the cap program for power plants, it
doesnt impose immediate caps on the power sector. The caps kick
in some years down the road. But there may be some entities in
the sector that want to move sooner and are able to move sooner.
They should get credit for doing so, but those are going to be real
tons, because they know they are going to be accountable in the
cap system, so you avoid the problem of play money credits that
you create if you have an early action credit scheme and no cap.
Senator BROWNBACK. That is a good comment.
Mr. Cassidy.
Mr. CASSIDY. I just reinforce Ms. Claussens comment that a
mandatory system doesnt have to be a straightjacket. Our own leg-
islative proposal features steadily more stringent caps and steadily
less flexible trading and incentive mechanisms, and we think that
160
is the approach that makes for the most efficient and effective im-
plementation.
Senator BROWNBACK. Mr. Chairman, I want to thank you for
holding the hearing and particularly for this panel. I think there
are a number of things that can be agreed upon and that we can
move forward on. I dont think we can do the whole thing. I dont
think we should do the whole thing at once, but I think there are
some pretty sensible mechanisms.
I have visited one place in Brazil earlier this year where a group
of companies and environmental groups purchased nearly 75,000
acres of land to reforest for carbon benefits. This is a beautiful
project that they are working on, good local input. Some of these
things, I think, can really solve a couple of problems and they
amount to a no-regrets policy. I am not sure if somebody in an ear-
lier panel mentioned that, but I think there are some steps that
can be made that make good sense.
There is no regret on this, regardless of how things move on for-
ward, and you create some business certainty out here for people
that Mr. Cassidy and others represent that need that in long-term
planning, need a 20-year horizon to be able to know if the type of
investment they are taking is going to be stable or if it is going to
be undercut by changes in laws that could occur. I think those in-
volve some form of trading system and some form of banking sys-
tem, where we can figure out what is a carbon credit.
Mr. Hawkins point, I think, is a valid one. People just kind of
create on their own types of carbon credits for down the road, and
say, Well, I have got 20 of my carbon credits; how many do you
have of yours? Instead, we can create a standardized carbon cred-
it, and that probably, Dr. Sandor, would help enormously in your
market mechanisms as well, even if we did that simple step this
year. And I think there would be a broad base of support for that
so I think there are a number of items there we can move foward.
I am appreciative of this panel and appreciative of your leader-
ship in working on the topic.
[The prepared statement of Senator Brownback follows:]
PREPARED STATEMENT OF HON. SAM BROWNBACK,

U.S. SENATOR FROM KANSAS
Mr. ChairmanI thank you for calling this hearing to investigate the new tech-
nologies on the horizon that will help us deal with the significant problem of global
climate change. I commend the positive approach this hearing is taking in looking
for solutionsareas of agreement, rather than focusing on that which divides us.
I know of the chairs personal interest and commitment to this issue and I thank
him for this opportunity.
The issue of global climate change has been controversial as long as its been an
issue. Is the Earths climate changing to a less hospitable place to live? At what rate
is this change occurring? Is mankind responsible for some or a large part? How can
you solve a problem that is global and involves the changing one of the basic eco-
nomic engines of most economiesa cheap and abundant energy supply? How do
we engage developing countries who will soon surpass the U.S. as largest green-
house gas emitters?
Invariably, there are more questions than answers to this complicated issue. But,
just because there are difficult and sometimes incomplete answers, does not mean
we should continue to avoid the questions. We need to find ways to address this
problem that avoid the traditional approach to environmental problems of assigning
winners and losers. There are numerous promising technologies and new uses for
old measuressuch as conservation and carbon sequestration, that can bring
progress forward without inflicting economic burdens. It is certainly more flashy to
161
cast this problem in terms of all or nothing solutionsbut that is never how true
progress is achieved.
Some of my colleagues are pushing for more research. I agree, this is a needed
piece of the puzzle. But we can and should do more than that. We should be encour-
aging an aggressive investment in new cleaner technologieswhich will, over time,
create the economic means for us to tackle this problem in a more complete way
than merely imposing punishing controls. But if we are to avoid arbitrary caps and
burdens to industry, then industry must step forward and address the growing con-
cerns posed by greenhouse gases. I am pleased that in my work on this issue, I have
met with numerous companies who have accepted this challengespecifically Amer-
ican Electric Power and BP have done pioneering work in finding cost effective ways
to bring down or offset emissions.
I look forward to hearing more about the technological approaches being pursued
and ways in which this body can assist in bringing these promises to fruition.
Senator KERRY. Well, Senator Brownback, I thank you very

much, and I know you have been interested in this, and you have
traveled to a number of the meetings, and it is going to be impor-
tant to have your participation in it, and I certainly look forward
to trying to do that.
I do think, if you listened to Dr. Evans who spoke on behalf of
the administration, I presume, because he was the only witness we
could get here from them, his testimony made it very clear that we
have got to have a policy of no net emissions at some point. And
every panelist has essentially agreed that the goal here is to try
to get to a point where the science says unequivocally, that you
cant keep adding CO2 to the atmosphere.
The second panel presented a very interesting set of possibilities
for ways in which you can avoid some of the hysteria that has sur-
rounded this so-called debate. There are draconian pictures drawn
that are just not what we face when you look at some of the things
happening in the marketplace already, when you look at some of
the technologies that are readily available, when you look at the
narrowing down of the cost per kilowatt hour between what is dirty
and what is clean. It is so close at this point in some regards that
shame on us if we dont find a way to try to not pick a particular
technology, but to create a framework where the marketplace is
going to be able to decide which one of those works best and how.
I do think that Ms. Claussens point about some kind of target
is very realistic. None of us want to create a draconian outcome
here that requires something unrealistic or has implications that
cant be enforced or that disadvantages the United States relative
to what others are being asked to do or are doing. But I think most
people are looking at some potential goals and targets here that
could at least create a mind-set, send a message that would estab-
lish our bona fides with respect to the others that we are trying
to negotiate with and create a global partnership with in this ef-
fort.
And I think that it would have a profound impact on the market-
place, so that without ever getting draconian, we could excite the
marketplace to recognize how serious it is. I mean, Ms. Claussen
has these 36 companiesIntel, IBM is moving, ALCOA is moving,
Polaroid. I mean, these are New York Stock Exchange major com-
panies in the U.S. constellation of corporate excellence, and I think
given their participation, what you would send to the rest of the
marketplace is a message that could perhaps obviate Congress hav-
ing to get its tentacles too much involved here.
162
So I think there are great possibilities, and I certainly look for-

ward to working with you, Senator Brownback, Senator McCain,
Senator Hagel, and others, and see if we couldnt come up with
something reasonable, which I think would do us all credit.
I am particularly grateful to everyone on this panel for your
extra patience in hanging in here, and the quality of the testimony
here today, I think, speaks for itself. But I thank you on behalf of
the Committee for sharing with us these important thoughts.
And the record will remain open for the 10-days that I suggested,
and with that, we stand adjourned. Thank you.
[Whereupon, at 1 p.m., the hearing was adjourned.]
APPENDIX
RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO
FRANK CASSIDY
Question 1. You stated that your group of companies does not want to confront a
situation in which you are forced to waste or put at risk large scale investments
predicated on one set of requirements only to have the rules changed a few years
down the road. For many older, existing facilities this is their concern about going
to a mandatory system for carbon dioxide reductions today. What would you tell
them to ease their fears about a mandatory system?
Answer. The only way to provide assurance that just such a scenario doesnt take
place is by including mandatory requirements for carbon dioxide reductions in an
integrated, comprehensive approach to power plant environmental performance. In-
cluding mandatory carbon controls in such a program will provide the industry with
regulatory certainty on which to base decisions about investment in new facilities
as well as how and whether to modify existing generating capacity.
The electric power industry has made considerable improvement in its environ-
mental performance since the Clean Air Act became law 30 years ago. However,
most of the improvements have resulted from regulations implemented on a pollut-
ant-by-pollutant basis. The key public policy question is how best to deliver substan-
tial additional emissions reductions necessary to protect public health at a time
when continued supplies of safe, reliable, and affordable electric energy require con-
siderable investment to rebuild an aging energy infrastructure.
Its my view that our industry and the capital markets on which we depend will
respond more favorably to the certainty provided by an integrated approach than
continuation of a piecemeal, pollutant-by-pollutant regulatory agenda. A multi-pol-
lutant strategy with firm emissions caps will create a more stable environment for
capital investment by providing long-term certainty about what the future demands
on the industry will be in terms of environmental performance. Companies will be
better able to develop strategies and justify investment in new and existing electric
generating capacity with a clear understanding of future compliance obligations.
Question 2. Your proposed legislation for a mandatory cap involves timetables for
implementation. How important are these timetables for the overall success of the
effort?
Answer. I think its very important from both the standpoint of environmental
management and business certainty to establish clear and unambiguous require-
ments for the amount of emissions reductions and a timetable for delivering the re-
ductions. I want to know what the targets are and when I have to meet them in
order to develop a coherent action plan. And I also want to know that my competi-
tors are obligated to meet the same set of requirements.
The timetables called for in the proposed legislation, in concert with predictable
and reasonable emissions reductions targets and flexible and cost-effective compli-
ance mechanisms, will deliver the benefits associated with reductions in the four
targeted pollutants on an economically sound and sustainable basis.
I fully understand the concerns about the cost impact of making the reductions
in the prescribed timetables called for in the legislation and the potential impact
on the future of coal-fired electric generating capacity. I believe very strongly that
continued use of coal for electricity generation is critical for maintaining fuel diver-
sity, minimizing volatility in electricity prices, and protecting long-term energy secu-
rity.
I also believe very strongly that the proposed legislation will not compromise the
use of coal as an electric generating fuel, and in fact, the regulatory certainty and
compliance flexibility called for in the legislation, will reduce barriers to investment
in new, clean electric generation sources including coal.
Recent studies conducted by the Energy Information Administration and the EPA
provide evidence that new power plant emissions requirements for nitrogen oxide,
sulfur dioxide, and mercury would not significantly affect electricity prices or dis-
place existing coal-fired generation. The flexibility mechanisms and timetables for
(163)
164
meeting carbon dioxide requirements included in the proposed legislation supports
continued operation of existing coal-fired capacity as well as deployment of new
technologies including advanced coal-generation technologies.
This issue is critical to evaluating the policy options and benefits associated with
an integrated multi-pollution approach. The Clean Energy Group is close to com-
pleting an economic analysis of the costs associated with complying with the pro-
posed legislation, and the preliminary results are encouraging. I would be pleased
to provide the report to Senator McCain, other Committee Members, and appro-
priate staff when the analysis is completed, and would welcome the opportunity to
meet with Senators and their staffs to discuss our analysis.
Question 3. The President has said he will pursue a voluntary approach at this time.
What are your concerns from an environmental perspective with this decision?
Answer. A voluntary program, no matter how attractive, will allow certain compa-
nies to avoid internalizing the cost of carbon, placing those that volunteer at a
competitive disadvantage relative to those who choose to continue to sit on the side-
line. In a highly competitive wholesale power generation market, even small cost
differentials can make a material difference, almost guaranteeing a race to the bot-
tom.
I am hard-pressed to think of what incentives might be offered (including New
Source Review flexibility) which would compensate a company like ours for taking
a limitation on carbon in the absence of an industry-wide commitment. Wed be
doing a disservice to federal policymakers if we ignored or understated this point.
We have been faithful participants in the U.S. Department of Energys 1605b
process from its inception; PSEG was, in fact, the first utility company in the nation
to volunteer. Industry experience with this program, however, does little to engen-
der confidence in the efficacy of voluntary approaches. I think most people recognize
that the 1605b inventory of reductions is grossly inflated and fraught with inconsist-
encies in accounting, baseline measurements, and other measurement parameters.
The single greatest motivator for participation in a voluntary carbon program
would be assurance that competitors in the wholesale generation market are also
participants. As I have stated, we remain highly skeptical that a voluntary program
can be crafted to achieve both real greenhouse gas reductions and 100% participa-
tion by our industry. This skepticism is part of what motivates us to continue to
advocate a reasonable, mandatory greenhouse gas reduction program in the context
of a four-pollutant/NSR reform legislative package for our industry.
RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. ERNEST F. HOLLINGS TO

EILEEN CLAUSSEN
Economic Benefits of Renewables Energy
Question 1. Ms. Claussen, a few years ago Ross Gelbspan made the following state-
ments on the potential economic benefits to the US of investment in renewables.
While the climate crisis contains staggering destructive potential, it also contain
an extraordinary opportunity to expand the wealth and stability of the global econ-
omy.
In a very few years the renewables industry could eclipse high technology as po-
tentially the most powerful engine of the global economy.
Do you agree?
Answer. I disagree that this will happen within a few years. Most analysts believe
that greenhouse-friendly technologies such as nuclear, solar, wind, biomass, hydro,
and conservation will continue to improve and achieve larger market shares in the
future. But an energy revolution will take time: it has taken on average a century
for the global market share of every major energy technologyfrom wood to coal
to oilto rise from 1 percent to 50 percent of global consumption.
Question 2. What are the other economic benefits to the US of reducing emissions
through technology?
Answer. Prominent economists such as Robert Solow have noted the importance
of technological change as the major long-term determinant of continued increases
in the standard of living.
Specific to greenhouse gas emissions, technological change can: (1) make carbon-
based fuels less expensive (e.g., through improvement in the efficiency of fossil fuel
extraction); (2) affect the overall rate of growth of the economy through improve-
ments in labor productivity; (3) increase the rate of improvement in alternatives to
carbon-emitting energy technologies; (4) increase the rate of improvement in the ef-
ficiency with which carbon-based fuels are used.
165
Question 3. Are there trade export opportunities that we are missing under the cur-
rent approach articulated by President Bush and the Administrations Energy Pol-
icy?
Answer. Yes, I think so. The Administrations energy policy does not provide suffi-
cient support for innovative clean energy technologies. The World Energy Council
estimates that global investment in energy between 1990 and 2020 will be about
$30 trillion in 1992 dollars. Two billion people in the world now lack access to elec-
tricity; and the developing world faces enormous environmental challenges. This
presents enormous opportunities to export innovative clean energy technologies that
can help the developing world leapfrog past some of the less efficient technological
investments in the developed world. If U.S. companies develop these technologies
here at home, and receive the support that they need in terms of research and de-
velopment, and other domestic policies that encourage innovation, U.S. businesses
and workers will reap the benefits of this huge export market. This will in turn en-
hance the long-term markets for other U.S. exports by building the energy basis for
sustainable economic prosperity in other countries.
Question 4. Ms. Claussen, you say that the science is telling us we need to reduce
greenhouse gas emissions over the long term, and that to do this we need a new
industrial revolution that will involve introducing low-carbon energy efficiency
technologies to the global economy. I am all in favor of improving U.S. competitive-
ness, but I see that many of the companies you represent havein service of this
global economysent may U.S. jobs overseas.
How will this industrial revolution help build U.S. jobs and improve U.S. exports?
Answer. See previous response.
Question 5. How far behind other countries is the U.S. in developing these tech-
nologies?
Answer. It is hard to say. The United States is ahead in some areas and behind
in others. For example, U.S. energy companies have a significant market share of
highly efficient gas-fired power plants worldwide. On the other hand, U.S. auto com-
panies have focused innovative efforts on producing large and powerful, but fuel-in-
efficient vehicles, and are behind foreign manufacturers in producing highly efficient
and hybrid-electric vehicles. United States companies face strong competition from
European and Japanese companies in solar photovoltaic (PV) technologies.
Question 6. How do we ensure that U.S. technologies are on the leading edge and
that jobs stay in the US over the long termdo your companies have a commitment
to supporting US technologies?
Answer. We need a two-pronged approach. First, we need to promote a domestic
market for these technologies through government policies, such as tax credits, effi-
ciency standards, labeling, and federal procurement. The domestic market is key to
a domestic industrys success in developing export markets. In other countries
where gasoline is taxed heavily and is thus relatively expensive, consumers demand
more efficient vehicles. Most of the U.S. solar photovoltaic industrys markets are
now outside the United States, where the industry faces strong competition from
European and Japanese manufacturers. The fastest growing market segment is for
applications that connect directly into the electricity grid in Europe and Japan, both
of which are promoting these applications through government policies.
Second, we need to increase energy R&D funding, through public-private partner-
ships and tax credits, based on a dedicated funding source. A sustained effort over
many years is needed. This means that we must begin making investments and im-
plementing policies now. It means we must develop institutions and funding mecha-
nisms that will stand the test of time. It means that we must take a portfolio man-
agement approachcasting the net broadly for technology options, investing most
heavily in the most promising approaches, and shifting our priorities over time as
we learn what works and what doesnt, both in the research laboratory and in the
marketplace.
The government has an important role in marshalling public resources, estab-
lishing goals and performance criteria, and providing incentives. But in the end, it
is non-governmental innovatorsscientists in search of knowledge, businesses in
search of profits, non-governmental organizations in search of societal benefitswho
will find most of the technological solutions.
The companies associated with the Pew Center have a huge presence in the
United States, and would like to continue to prosper here. However, the greater the
divergence between the United States market and that of the rest of the world, the
more difficult it becomes for them to compete successfully both here and abroad.
166
EILEEN CLAUSSEN
Question 1. What would it mean to U.S. competitiveness if the rest of the world
signs the Kyoto agreement without the U.S. and thereby establishing key Inter-
national environmental regulations?
Answer. In the short-run, the lack of U.S. action on climate change (and lack of
participation in the Kyoto process) may appear a competitive advantage for compa-
nies here not having to operate under emissions caps. However, any short-term ad-
vantage will not be sustainable as the global marketplace moves toward more effi-
cient, low-carbon technologies. Companies operating in areas governed by green-
house gas (GHG) reduction requirements will likely be at the forefront of developing
these technologies that can ultimately be exported to the rest of the world, and will
be ahead of the curve in buying and selling emissions credits. Further, by leaving
the design of the international trading system to others, we are missing opportuni-
ties to structure it to the advantage of U.S. companies. The uncertainty regarding
future GHG restrictions will also make it difficult for United States companies to
make important investment decisions, and they will need to operate under very dif-
ferent regimes here and abroad. Finally, the possibility of boycotts for U.S. products
grows over time if the U.S. chooses not to participate in a global approach to ad-
dressing climate change.
Question 2. Do you feel that voluntary trading systems will fail without any even-
tual mandatory emission caps?
Answer. To date, efforts to limit GHG emissions in the United States have been
limited almost exclusively to voluntary activities. Though some voluntary efforts
have been successful, these reductions in GHGs have been more than offset by in-
creased emissions associated with economic and population growth, resulting in
overall growth in U.S. GHG emissions (an increase of 12 percent over the past dec-
ade). Voluntary programs can make an important contribution to a domestic climate
change program, and can provide valuable experience for designing future manda-
tory efforts, but they cannot stimulate the broad engagement that will be required
to achieve the level of emissions reductions necessary to stabilize the global climate.
Because a voluntary trading program does not have the certainty associated with
it that a government program would, and because it would not require participation
of all important sectors, it remains unclear how such nascent programs could relate
to an eventual domestic and/or international trading system. A voluntary trading
approach cannot realize the full environmental and economic benefits of a fully inte-
grated, economy-wide (or even better, an international) GHG market.
Ultimately, an effective and affordable emissions reduction program must couple
mandatory GHG reductions with technology development and market mechanisms.
Question 3. Can you comment on whether increasing energy efficiency often means
increasing costs, at least initially, and whether US industries are willing to make
that initial investment?
Answer. There are many ways in which U.S. companies can begin to increase
their energy efficiency with practices that require very minimal investment and
earn much greater savings. For example, United Technologies Corporationone of
the Pew Centers Business Environmental Leadership Council (BELC) companies
made an investment in $5,000 for computer labels that resulted in an annual sav-
ings of more than $225,000 at one facility simply by reminding employees to turn
off their computers at night. Also, the EPAs Energy Star program has resulted in
U.S. greenhouse gas reductions in the year 2000 equivalent to taking ten million
cars off the road. 864 billion pounds of carbon dioxide emissions have been pre-
vented due to Energy Star commitments to date, with cumulative energy bill sav-
ings of $60 billion through 2010.
Of course, more significant and permanent reductions will require greater invest-
ment, but announcing a policy and allowing time for capital stock to turnover to
more efficient technologies will be key to ensuring that transformation to a lower-
carbon economy is done in a cost-effective manner. Certainly, providing emissions
trading opportunities also allows for the most-efficient reductions to take place first.
Many U.S. industries are already willing to make investments in more efficient
and climate-friendly technologies and practices. The 36 members of the BELC are
evidence of that commitmentnot only through reducing their own on-site energy
use, but also in making more efficient products and appliances. For example, in
2000, 91 percent of IBM personal computers and 100 percent of monitors qualified
for the EPA Energy Star label. Through its new silicon-on-insulator technology, IBM
has increased the performance of computer chips by about one-third while using up
to three times less power. Likewise, Intel has developed a technology that allows
167
PCs to run more efficiently while reducing energy use by 60 percent. Total energy
saved from this technology will reduce carbon emissions at Intel by 19.5 million
metric tons over the next five years. (See the Pew Center website, http://
www.pewclimate.org, for more information on BELC company initiatives.)
Question 4. You have stated that efforts to reduce U.S. emissions have been reduced
to voluntary efforts. Mr. Hawkins does not seem to support voluntary efforts. In
your opinion, how helpful are voluntary programs, such as the Chicago Climate Ex-
change, in reducing greenhouse gas emissions?
Answer. As mentioned above, voluntary programs can make important contribu-
tions to a domestic climate change program. To date, however, voluntary programs
have not been sufficient to curb or stabilize U.S. greenhouse gas emissions. Internal
emissions trading programs such as those initiated by BP and DuPont and inter-
company pilot trading programs serve as useful laboratories and are obtaining early
and cost-effective GHG reductions. However, such programs are not a substitute for
a domestic economy-wide program that would have the backing of the federal gov-
ernment and yield significant and verifiable emissions reductions across all sectors.
Question 5. You state that U.S. companies will find the production of energy effi-
cient products to be a business opportunity. Yet, in the last panel, Mr. German
seemed to say that there was not a large consumer demand for efficient tech-
nologies. Is there global demand for energy efficient technologies, and what can U.S.
firms do to stimulate this demand?
Answer. As EPA Administrator Christine Todd Whitman said in a recent press
release regarding the Energy Star programs expansion into Canada, Energy effi-
ciency, through technology and innovation will be crucial to our energy security, as
well as our quality of life, in the 21st century. (July 19, 2001, see http://
www.epa.gov.) Demand for Energy Star-labeled products and buildings has grown.
For example, by December of 1996, over 200 Energy Star homes had been built; by
December of 2000, over 24,000 of these homes had been constructed. One way firms
can stimulate demand in energy efficient products is through implementing edu-
cation and product advertisement programs that demonstrate the annual energy
cost savings of using more efficient appliances and other products.
The Pew Centers research has found that government can aid in expanding this
market through incentives aimed at product manufacturers. Coupled with product
efficiency standards, labeling requirements, and efforts to train appliance salesmen,
builders, etc., the market for efficient products could indeed be a lively and vigorous
one.

DENNIS J. DUFFY
Question 1. Who are the leading countries in the utilization of wind power? Where
does the U.S. stand relative to these countries?
Answer. Currently, the leading countries in aggregate installed wind power are
Germany (6,107 mw), Spain (2,836 mw), United States (2,610 mw), Denmark (2,341
mw), India (1,220 mw) and the Netherlands (473 mw). World Market Update, BTM
Consult Aps. With respect to wind power as a percentage of overall supply, however,
the U.S. is well behind many other nations. Denmark, which is half the size of Indi-
ana, has nearly as much wind energy installed as the entire U.S., and wind cur-
rently supplies more than 15 percent of its electricity needs. Germany, which is half
the size of Texas, has over 2,000 more megawatts of installed wind energy than the
entire U.S. Further, the rate of annual growth (19992000) in wind energy for the
U.S. (6.8%), falls well behind the growth rates of many nations of the industrialized
world, such as Germany (37.5%), Spain (56.6%), the United Kingdom (17.4%), Den-
mark (34.7%), Italy (53%) and China (34.4%). Id. The relative volumes and growth
trends for the past decade are set forth in the following graph:
168
Question 2. You mention in your written statement that wind units have a marginal
cost of zero. Can you explain this further?
Answer. Marginal cost refers to the additional costs incurred in the production
of a specific increment of a commodity, which would not otherwise have been in-
curred. In the electricity business, the marginal costs of production for most tech-
nologies consists primarily of the cost of fuel consumed in the process of generation,
as well as any incremental O&M costs that would not have been incurred had the
generation facility not been dispatched. In contrast to traditional combustion tech-
nologies, wind generation has marginal costs of close to zero, since there is no fuel
costs and only insignificant O&M costs associated with any incremental production.
It is this ability of wind power to generate electricity without marginal costs that
would cause consumers in deregulated power pools to see substantial reductions in
their overall power costs. All sellers into these deregulated pools are paid the same
clearing price reflecting the marginal costs of the last (and highest marginal cost)
generating unit dispatched in any hour. The underlying theory is that overall effi-
ciencies are achieved by dispatching pool resources according to their marginal costs
in economic merit order, from the lowest to highest marginal costs. Because wind
units have a marginal cost of zero, they are among the first units dispatched in
every hour, with the result being that other units with higher marginal costs that
would otherwise have been dispatched and set the clearing price are displaced from
the economic dispatch and are not run. The clearing price for the entire pool is thus
set by a unit with a lower marginal cost bid than would otherwise been the case.
Because the resulting reduction in clearing prices is then applied to the entire vol-
ume of electricity traded in the pool, there is a multiplier savings effect, such that
amounts extended to support a relatively small volume of wind power results in far
greater costs savings through the reduction of generally applicable clearing prices.
Question 3. If wind power is as cost effective as you have stated, why are govern-
ment subsidies so vital?
Answer. Although the cost per kilowatthour of wind energy has been reduced sub-
stantially in recent years, the capital cost of wind generation remains at a level
where the growth of the U.S. wind industry still requires economic and regulatory
market support. It must also be noted that the capital cost of wind generation (and
hence the degree of support required) varies greatly amongst regions of the country,
with such differential driven largely by varying transmission and construction costs
and wind quality. In the Northeast, for example, the viable development of wind re-
sources of substantial scale is limited to areas in mountainous terrain or offshore,
both of which involve substantial construction challenges, as well as the require-
ment of new transmission lines in order to interconnect and deliver electricity to
customer load centers. In any event, it is our belief that the relatively high capital
costs of wind facilities would make them economically infeasible in most scenarios
in the U.S. market absent continuing market support.
This is not to imply, however, that support for the wind industry would cause the
public to pay any more for its power. To the contrary (and as noted in the response
above), the price for power in deregulated pools is driven solely by bids reflecting
the marginal costs of the last unit dispatched in any interval, such that initiatives
to support the capital costs of relatively small volumes of wind generation are offset
many times over by the resulting suppression of the energy prices applicable to the
710duffq.eps
169
entire volumes traded within the respective pools. I also note that the European na-
tions that have taken the lead in wind development have done so with continuing
market supports.
Question 4. Why are utilities not considering long-term purchases of renewable en-
ergy as part of their overall portfolio planning?
Answer. When most regions of the country undertook deregulation of their elec-
tricity markets, there was a common presumption that traditional utilities would
continue to sell electricity at retail at a far lesser degree than had formerly been
the case. The belief was that, upon the opening of deregulated markets, the bulk
of retail customers would migrate to retail sales provided by competitive marketers
unaffiliated with the traditional utilities. Thus, in many regions, the continuing role
of utilities in retail sales was to be a last resort supplier, with rates reflecting cur-
rent (i.e., short-term) market prices which would serve as a benchmark against
which competitive suppliers would propose sales to the public. Indeed, in some re-
gions utilities were required to make all of their wholesale purchases in the spot
markets and numerous jurisdictions still require utilities to make most of their
wholesale purchases for durations of one year or less. Thus, many traditional utili-
ties are reluctant to, and some cases precluded from, proposals for longer-term sales
from wind generators, even if it can be demonstrated that such generation, through
its lack of any marginal costs, would lead to substantial overall reductions in the
price of electricity in the associated power pool.
Although competitive marketers are not so limited by regulatory policy, many are
similarly reluctant to enter into long-term contracts for wind power, a reluctance
which may be explained in part by uncertainties as to long-term regulatory policies
and market conditions. In any event, the reluctance of purchasers to entertain long-
term arrangements is a serious problem, for which the requirement of stated renew-
able portfolio standards (RPS) percentages are an important market support struc-
ture. Such long-term RPS requirements are particularly important, since short-term
pricing does not capture the full economic value of the economic hedge against fuel
price volatility provided by wind energy.
Question 5. One constant criticism of wind power has been the reliability of the
technology. However, Dr. Kammen has described a revolution in this technology.
What recent developments have there been to improve wind technology?
Answer. Improved design of mechanical and electrical components has proven to
be a major factor in augmenting performance, increasing turbine lifetime and reli-
ability, and reducing cost. Structural engineers are today designing turbines that
are both stronger and lighter in weight than their predecessors. They perform bet-
ter, and they cost less to produce because they use fewer materials than heavier
structures. These new designs reduce stress by flexing, rather then rigidly with-
standing harmful loads such as those caused by turbulence. Likewise, engineers
have developed new, flexible mechanical components, such as teetered hubs, which
reduce these loads by allowing the rotor to pivot away from turbulent winds and
thus relieve stress. Electrical components such as generators continue to improve
dramatically. For example, some new turbines come equipped with variable-speed
generators (and drives) with power electronics. Other advances include a low-speed
generator that will eliminate the need for a mechanical gearbox, reducing costs ac-
cordingly.
Engineers at NREL and Sandia National Laboratories located in Albuquerque,
New Mexico, have also developed a series of computer programs for designing state-
of-the-art wind turbines. Using these programs, turbine designers can test new de-
sign ideas using sophisticated computer systems to model how they will perform and
hold up under operating stresses before building expensive hardware. These codes
lie at the heart of modern technological innovation, especially for using new light-
weight materials.

DR. DAVID L. EVANS
Question 1. Dr. Evans, how well are we monitoring our carbon emissions?
Answer.
Carbon emissions from various sources (industrial, transportation, agriculture,
forestry, etc.) are monitored and estimated by different methods. The accuracy
of these estimates varies by sector. U.S. aggregate greenhouse gas emissions are
estimated by both the Environmental Protection Agency (EPA) and the Depart-
ment of Energys Energy Information Administration (EIA). Under an inter-
agency agreement, the EIA, provides energy and energy-related carbon dioxide
170
emission estimates to the EPA. EPA uses these data, as well as estimates of
methane, nitrous oxide and halogenated substances emissions, to compile the of-
ficial U.S. inventory of greenhouse gases submitted under the UN Framework
Convention on Climate Change in EPAs publication, Inventory of U.S. Green-
house Gas Emissions and Sinks. The information is available on the EPA
website: http://www.epa.gov/globalwarming/emissions/national/index.html.
EPA also receives highly accurate carbon dioxide emissions data from contin-
uous emissions monitors directly from electric utilities as required under Title
V of the Clean Air Act.
EIA, as required by Section 1605(a) of the Energy Policy Act, also compiles an-
nual estimates of greenhouse gases (carbon dioxide, methane, nitrous oxide and
halogenated substances). These estimates can be found in EIAs publication
Emissions of Greenhouse Gases in the United States, and the information is
provided by EIA on their website: http://www.eia.doe.gov/oiaf/1605/ggrpt/
index.html.
The net effect of these emissions on the atmosphere can be monitored through
atmospheric measurements. NOAA operates a global atmospheric carbon diox-
ide and methane monitoring program, collecting air samples from about 50
sites. This allows the determination of how much carbon dioxide remains in the
atmosphere each year. When atmospheric carbon dioxide changes are compared
with data on annual emissions, a composite estimate can be made (by subtrac-
tion) of how much carbon has been taken up by the oceans, plants, and soils.
Since samples can only be collected once per week at present, and since the
number of measurement sites is currently limited, the temporal and spatial res-
olution of such measurements is at best annual and global with resolution of
the two hemispheres possible. In order to accurately monitor the atmospheric
effect of carbon emissions on a regional basis, the number of measurement sites
would have to be increased considerably.
Question 2. How can we engage in Carbon Management through limits, targets,
early action, or credits if we dont know where our carbon is going?
Answer. NOAA is currently working to estimate how much carbon is going into
the oceans and how much is going into the terrestrial biosphere (trees, plants and
soils as a single entity) globally on an annual basis. However, the present atmos-
pheric measurement network is adequate to do this partitioning only on a hemi-
spheric basis. Regional data are currently derived primarily from inventories and
mapping conducted by other agencies, such as the U.S. Department of Agriculture
(USDA), the U.S. Geological Survey (USGS), and the National Aeronautics and
Space Administration (NASA). The federal agencies of the U.S. Global Change Re-
search Program (USGCRP) are working together through the U.S. Carbon Cycle
Science plan to develop methods and tools that will improve the accuracy and effec-
tiveness of carbon measurement and monitoring.
Question 3. What role could the Department of CommerceNIST, NOAA, Commer-
cial Services, International Trade Administrationplay in the following domestic or
international carbon management areas: (1) monitoring and adaptive management;
(2) verification; (3) registry; (4) coordination; (5) trading; and (6) technology trans-
fer?
Answer. NIST measurements and standards laboratories can play a central role
in carbon management, specifically in the area of carbon monitoring. The proper
NIST role would be to work with climate change experts in determining the proper
measurements for carbon monitoring, to work with policy experts to determine the
most effective monitoring network for total U.S. Carbon Emissions Management,
work with national and international organizations and measurement experts in de-
veloping accurate and cost-effective measurement standards that support the U.S.
interests and assure global acceptance of U.S. carbon monitoring results, to develop
a nation-wide monitoring strategy and system and to work with state and local au-
thorities to implement a cost-effective carbon monitoring system. NIST could play
a continuing role in measurement quality assurance and conformity assessment
throughout the United States.
ITA can advance U.S. objectives regarding carbon management and climate
change by actively facilitating international trade of environmental technologies
goods and services and attendant technology transfer. ITA works on behalf of U.S.
environmental technologies providers and supports multilateral and bilateral liber-
alization of environmental technology trade, improved protection of intellectual
property rights, as well as bilateral environmental technology cooperation. ITA also
provides the full range of trade development and trade promotion services to U.S.
environmental technology providers.
171
NOAA also has a strong role in global monitoring of greenhouse gases, particu-
larly those involved in the carbon cycle. NOAAs Climate Monitoring and
Diagnostics Laboratory makes ongoing discrete measurements from land and sea
surface sites and aircraft, and continuous measurements from baseline observatories
and tall towers. These measurements document the spatial and temporal distribu-
tions of carbon cycle gases and provide essential constraints to our understanding
of the global carbon cycle. The measurement program includes air samples collected
approximately weekly from a globally distributed network of sites. We also develop
several products and services to make this information available to the public.
In addition, many U.S. climate change activities in developing countries and
economies in transition are undertaken by USAID. Therefore, Commerce has
worked with USAID, as well as with EPA and other agencies, to share information
and coordinate efforts where appropriate.
Question 4. What role do you see the Advanced Technology Program and NIST as
a whole playing in the development of new energy efficient technologies and advanc-
ing technologies to support renewable energies?
Answer. Facilitating the development and advancement of new technologies is at
the core of the NIST mission. NIST sees an increasing demand for improved meas-
urements, as well as the characterization of new energy efficient technologies, and
technologies that support renewable energy. The development, acceptance, and
usage of new technologies will not happen without the underpinning measurements
that facilitate the selection and application of new materials, demonstrate their fit
for purpose, or demonstrate increased energy efficiency or other advantages, such
as reduced emissions.
The NIST Measurements and Standards Laboratories provide this critical meas-
urement infrastructure. For example, NIST is making significant contributions to
the acceptance and use of alternative refrigerants to replace the ozone-depleting
chlorofluorocarbons. The NIST program is comprehensive and includes: industrial
consultation on exploratory materials and newly commercialized fluids;
thermophysical measurements and critical data evaluation; theoretical modeling; es-
tablishment and promulgation of international standards; and dissemination of the
critical data to the private sector. This data is fundamental to the design of efficient
refrigeration systems and is used by industries worldwide.
As further examples, NISTs work on the properties of advanced ceramics is aimed
at the development of very high efficiency combustion engines; work on materials
for solid-state lighting systems is aimed at developing next-generation energy-effi-
cient lighting; development of standard reference data on the thermodynamics of
bioprocessing that are critical for engineering biocatalytic processes used in manu-
facturing with renewable and/or more environmentally-friendly resources; and col-
laborations with our industrial partners on advanced fuel cell design will help de-
velop cleaner, more fuel efficient vehicles. NIST and Advanced Technology Program
(ATP) are participating in the Biomass R&D Board, a technical advisory committee
of the Biomass Research and Development Advisory Committee, with the USDA,
DOE, EPA, and other agencies, that was enacted under The Biomass Research and
Development Act of 2000 and Executive Order 13134: Developing and Promoting
Biobased Products and Bioenergy of 1999.
The NIST Advanced Technology Program cost-shares research in advanced tech-
nologies across several sectors that directly and indirectly impact energy efficiency
and global climate change. The Advanced Technology Program directly impacts en-
ergy efficiency by funding projects focused on reduced fuel consumption, the develop-
ment of alternative sources of energy, and more efficient processes for current en-
ergy technologies. For example, under an Advanced Technology Program project,
Cargill-Dow LLC developed critical process technology that permitted them to re-
cently launch a new $200M manufacturing facility to convert corn into plastics for
consumer items. In FY 2000, thirty-five projects directly related to energy produc-
tion or storage were part of ATPs active portfoliothe outlays totaled $30M.
The Advanced Technology Program funds projects that have a significant sec-
ondary impact on energy efficiency and environmental emissions, for example,
through improved or alternative manufacturing processes and equipment in the
chemical and transportation sectors. These secondary technologies include: sensors,
software for industrial design and process control, composites, super alloys, hard
coats for machine tools, catalysts, and refrigeration. For example, BalaDyne Cor-
poration developed a vibration control technology to enable mass balancing of high-
speed machining tools which could in turn enable companies to increase the quality
and precision of parts for automobiles and other products, thereby improving down-
stream energy efficiency.
172
Industry feedback indicates that an increasing need for new technologies applied
to energy efficiency and renewable energy will drive future investment opportunities
in the Advanced Technology Program.
Question 5. Would you not agree that NISTs Advanced Technology Program would
be the best vehicle to create and promote these innovative partnerships between
science and industry?
Answer. The NIST Advanced Technology Program cost-shares high-risk research
in public-private partnerships and accelerates the development of new technologies
to generate widespread benefits for the Nation. One of the Advanced Technology
Programs missions is to support and facilitate partnerships with the private sector,
universities, non-profit organizations, and other Federal agencies. The Advanced
Technology Program also has a long history of working synergistically with the mis-
sion-oriented agencies of the Federal government in areas where ATP can support
high-risk applied research efforts that are either not within the mission of the other
agencies or, though high risk, could enable later research by the mission agencies.
RESPONSE TO QUESTION ASKED AT HEARING BY HON. JOHN MCCAIN TO

DR. DAVID L. EVANS
Question. What percent of the coral reefs in the oceans of the world are dying, in
your estimation?
Answer. Dr. Donna Turgeon, a marine ecologist with the NOAA National Ocean
Service, has just completed a draft report, The Health of US Coral Reef Eco-
systems: 2001, that is now under review with over 100 U.S. managers and sci-
entists. According to Dr. Turgeons report, . . . [t]he scientific evidence is regarding
worldwide degradation of coral reefs over the past decade . . . 36% of all reefs glob-
ally were classified as threatened by over exploitation, 30% by coastal development,
22% by inland pollution and erosion, and 12% by marine pollution. When these
threats were combined, 58% of the worlds reefs are potentially threatened by
human activity ranging from coastal development and destructive fishing practices
to over exploitation of resources, marine pollution, and runoff from inland deforest-
ation and farming. [A]bout 10% of the worlds coral reefs may already have de-
graded beyond recovery and another 30% are likely to decline seriously within the
next 20 years. Further, the Global Coral Reef Monitoring Network (2000) reported
coral reefs have continued to decline since its 1998 report. An estimated 27% of the
worlds reefs have been effectively lost, with the largest single cause being an exten-
sive climate-related coral bleaching event in 1998.

DR. DAVID L. EVANS
Question 1. Recent National Academy of Science recommendations include the es-
tablishment of a National Climate Service which would focus on the weather moni-
toring as opposed to weather predicting. Can you highlight the distinction between
weather monitoring and predictions? Also, how would a National Climate Service
differ from the National Weather Service?
Answer. Most of our current observing systems were designed to provide input
into forecasting daily weather events, i.e., storms, temperature and rainfall ex-
tremes. These systems are designed to monitor daily large environmental changes.
As the data needs are more immediate in nature, new instruments that are brought
online may not be calibrated to collect data consistent with older tools for long-term
observations. Climate applications require data sets that document small changes
in the environment occurring over seasons to decades, i.e., monitoring how the plan-
et is changing. This places a premium on accuracy and consistency over time. Cli-
mate observation needs special data sets not needed for weather forecasts. The
changing forcing of the planet by changes in greenhouse gases, aerosols, and solar
radiation requires that well-calibrated observing systems for these be established.
The primary use of weather information is in the protection of lives and property.
On seasonal to decadal timescales climate information is used for economic and
long-range disaster planning, e.g., will there be more storms, what are the heating/
cooling requirements this next season, will there be a drought, how to manage water
resources, what crops to plant, etc. Climate forecast models also require a more
interdisciplinary basis than is needed for weather forecasts in order to accurately
incorporate factors such as chemical processes, carbon cycles, ocean dynamics,
changes in land cover and surface albedo, and hydrologic processes. On multi-
decadal to centennial timescales, climate information is input for policy decisions by
173
governments and the private sector: how large should emission reductions be; what
new energy technologies should be invested in; what are the societal threats; and
what carbon sequestration strategies might be pursued.
The different customer bases, e.g., economic and policy vs. protection of life and
property, plus the need for new types of global observations and higher standards
and uses for weather data, argue for the establishment of a Climate Service. Cli-
mate forecasts models also have to include more interdisciplinary physics, i.e., chem-
istry, interactive carbon cycles, global ocean dynamics, than are needed for weather
forecasts. The need to run multi-decadal to centennial forecasts requires supercom-
puter resources that rival or exceed those needed for weather forecasts.
However, there are advantages to have a Climate Service closely linked to the Na-
tional Weather Service (NWS). The Weather Service provides much of the data in-
frastructure. The forecast dissemination infrastructure of the NWS can be leveraged
to provide links to the user communities. The modeling advances from each can be
leveraged to make improvements to both kinds of forecasts.
Question 2. Do you feel that climate-related technologies are being efficiently trans-
ferred from the government sponsored research programs into the market place
such that their real potential may be fully realized?
Answer. NOAAs climate-related activities are predominantly in the areas of re-
search, observation and modeling. Technological advances have improved our cli-
mate observation systems. Computer simulation is one of the most important com-
ponents of a comprehensive climate research program. The climate research commu-
nity has made significant progress over the past 20 years, continuing the develop-
ment and application of climate models. Efforts are planned within the U.S. mod-
eling structure to more fully support the delivery of products critical for making cli-
mate simulation and prediction more usable and applicable to the broader research,
assessment and policy communities.
As noted in the National Academy of Science report Climate Change Science: An
Analysis of Some Key Questions, future climate change will depend on technological
developments that may allow reductions of greenhouse gas emissions or the cap-
turing and sequestering of these gases. However, technology transfer activities re-
lated to greenhouse gases are found primarily at other federal agencies, including
the DOE, EPA, and USDA. Within the Department of Commerce, the NIST Ad-
vanced Technology Program has funded research into technologies aimed at improv-
ing energy efficiency and increasing the use of low carbon fuels. Federal programs
within EPA and DOE promote greenhouse gas reductions through the development
of cleaner, more efficient technologies for electricity generation and transmission.
Internationally, USAID undertakes programs to help disseminate these clean tech-
nologies to developing country markets through pilot demonstration projects and
structural reform initiatives. The Department of Energys Carbon Sequestration
Program, which focuses on ways to capture greenhouse gases and either store them
or recycle them into useful products, has evolved into larger scale partnerships with
private research institutions, industries, and universities sharing a major portion of
the research costs. The private co-sponsors of these projects contribute an average
of 40 percent of the total project costs, well above the Departments minimum re-
quirement of 20 percent. This significant cost share will help ensure that climate
related technologies are efficiently transferred into the market place.
Question 3. The President has requested the Secretary of Commerce to set priorities
for additional investments in climate change research, to review such investments,
and to maximize coordination among federal agencies. Can you comment on how
those responsibilities may be distributed within the Department?
Answer. A well-coordinated interagency and interdisciplinary approach is critical
for setting appropriate priorities and for addressing the complex issues of climate
change research. The Secretary of Commerce is reviewing existing programs and de-
veloping recommendations for the President. Environmental data collection related
to climate change research is a part of NOAAs mission. NIST is responsible for the
national standards of measurements used by outside agencies to study some ele-
ments of climate change. Together, these two agencies provide critical components
needed to effectively study and understand climate change in an interagency envi-
ronment.
As with the other global change-related research carried out by the U.S. govern-
ment, the resulting activity may also include additional Federal agencies, including
those that currently participated in the U.S. Global Change Research Program.
Question 4. Do you feel that the uncertainties in the science discussed in the Na-
tional Academy report on Climate Change is sufficient to justify waiting to take leg-
islative action?
174
Answer. The scientific uncertainties identified by the National Academy have not
in any way discouraged a strong national policy response to climate change, but
have instead informed and directed the response appropriately toward enhanced sci-
entific and technology research, development and application. The ongoing cabinet-
level review of this important long-term policy challenge may result in additional
policy options for legislation, in addition to the substantial measures announced by
the President on June 11. Working closely with the Congress, the Administration
will propose any new legislation that may be needed to implement the Presidents
initiatives, when the interagency reviews and recommendations are completed.
Question 5. How has the ATP contributed to climate change research? How much
funding has been spent in this area?
Answer. ATPs historical commitments in the generation and storage of electrical
power and in environmental technologies total over $180M in high-risk enabling re-
search projects. These technologies will directly impact energy efficiency and global
climate change through reduced fuel consumption, development of alternative
sources of energy, and more efficient processes for current energy technologies. In
FY 2000, thirty-five projects directly related to energy production or storage were
part of ATPs active portfoliothe outlays totaled $30M. The areas of research in-
clude oil and gas, batteries and super-capacitors, energy conservation, wind and
solar, fuel cells, and motors and generators.
In addition, other ATP projects will have indirect impacts on energy and the envi-
ronment as their technologies become distributed into manufacturing and other en-
ergy-intensive sectors. These technology development activities include high risk re-
search in sensors, software for industrial design and process control, composites, al-
loys, hard coatings for tools, catalysts and biocatalysts, chemical separations, and
refrigeration. Together, these additional technology developments will significantly
increase the energy efficiency and reduce the emissions of manufacturing in the
chemicals, materials, and transportation sectors.
RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

DR. DAVID L. EVANS
Question 1. NOAA has recorded a rise in sea temperatures. Presuming that this
trend continues and is accompanied by an elevation of sea level, how is NOAA plan-
ning for such an occurrence? Are various NOAA programs for fisheries and coastal
zone management incorporating this information into both short- and long-term
planning and management processes?
Answer. According to the Intergovernmental Panel on Climate Change (IPCC),
there has been a 1020 cm rise in sea level over the last century globally. NOAA
is responsible for maintaining the National Water Level Observation Network
(NWLON) at approximately 190 stations around the U.S. coasts. The long-term
measurements collected as part of NOAAs NWLON help provide the basis through
which the rate of sea level rise can be determined.
NOAA has been active in assessing the potential impacts of sea level rise on the
U.S., examining the potential for erosion, wetland habitat loss, and increased vul-
nerability of coastal regions to storm surge as a result of sea level rise.
The National Marine Fisheries Service (NMFS) has been involved in studying the
potential impacts of global climate change on fisheries since the early 1990s. NMFS
scientists co-chaired and co-authored the Fisheries Chapter of the 1995 IPCC Vol-
ume. The IPCC provides a status of global climate change research every five years.
The volumes are compiled by teams of international scientists and broadly reviewed
by the scientific community. NMFS also prepared a compilation volume on polar cli-
mate change impacts drawn from the 1995 IPCC volumes. By the very nature of
the polar regions, impacts on fisheries were a significant portion of the work. NMFS
scientists were technical reviewers of the recent 2001 IPCC volumes that updated
the 1995 volume, but from a regional perspective. Similarly, NMFS provided tech-
nical review and comments on the recent National Assessment of climate change im-
pacts coordinated by the USGCRP.
NMFS has maintained sections of headquarters and field websites focused on the
potential impacts of climate change and the existing research that contributes to
this understanding. An initiative has been developed to work with coastal commu-
nities to determine their concerns about impacts of climate change on their econo-
mies, ecology, and way of life. The initial regional workshops would serve as a co-
ordinated discussion to make the most recent information about climate change
available to communities but also to ensure that future research by NMFS would
be directed toward the expressed needs of our constituencies. While funding has not
been identified to implement the full initiative, NMFS scientists have been working
175
with the private sector to begin the efforts using private funding from competitive
proposals. The Steering Committee is working with staff at local universities and
calling on expertise across disciplines to help guide the discussions. NMFS contribu-
tion will be to provide personnel, scientific expertise and contacts, and other in-kind
services. The first workshop is being organized in Maine to look at the best esti-
mates of climate change impacts on Maine fisheries and economies, to identify po-
tential responses, and to determine if existing situations could be used as case stud-
ies to design innovative solutions that could provide guidance for communities in a
changing climate scenario. NFMS is also working with other parts of NOAA and the
U.S. Fish and Wildlife Service to investigate how data on sea level rise and associ-
ated alterations of coastal habitat can be used to guide habitat protection and res-
toration efforts.
Finally, NMFS scientists participate on a variety of committees and review proc-
esses to ensure that climate change impacts on fisheries and on coastal economies
dependent upon marine fish and their habitat are addressed in ongoing research
and assessments.
Question 2. How would an integrated network of ocean observatories aid NOAAs
climate change research and modeling capabilities? What would be required to cre-
ate such a network?
Answer. The integrated global ocean observing system for climate consists of in
situ (fixed platforms [moorings and flux reference sites]; profiling floats; submarine
cables; drifting buoys; shipboard [research and voluntary] observations such as ex-
pendable bathythermograph observations, thermosalinographs, and atmospheric ob-
servations, including precipitation; repeat oceanographic sections; and sea level
gauges) and remotely sensed observations (satellite altimetry and scatterometry;
coastal radars). It also includes satellite communications to transmit these data;
support of shipboard operations; development of a real-time data management sys-
tem; and the development of basic techniques to assimilate these data.
The overall ocean observing system should provide a four-dimensional (i.e., in-
clude spatial and temporal data) description of the oceanic variables of climatic and
societal relevance. Fixed-point observations are required to resolve the variability
associated with processes such as biological productivity relative to the carbon cycle,
ocean bottom biogeochemical cycles; and air-sea interactions. Moorings are uniquely
suited for sampling dynamic areas of the ocean such as high latitude regions and
the deep ocean during adverse weather conditions. Fixed-point observations from
moorings and observatories are an essential element of the required observing sys-
tem because:
they are uniquely suited for sampling two dimensions (depth and time), thus
complementing other components of the observing system (satellites, drifting
buoys, Argo floats, high frequency radars in coastal regions, etc.). They resolve
temporal variability and are capable of sampling the entire water column, in-
cluding the ocean bottom;
fixed-point observations are the only approach for resolving multidisciplinary
variability and processes such as biological productivity and the cycle of CO2,
ocean bottom processes, and air-sea interactions; and
moorings are uniquely suited for sampling critical or adverse regions or periods
such as boundary current regions, the deep ocean, and observations during
storm seasons.
The observatory system would be multidisciplinary in nature, providing physical,
meteorological, chemical, biological and geophysical time-series observations. The
data would be publically available as soon as received and quality-controlled by the
owner/operator. An international science team would provide guidance, coordination,
outreach, and oversight for the implementation, data management, and capacity
building. The initial implementation would consist of all operating sites (e.g., Ber-
muda Atlantic Timer Series, Tropical Atmosphere-Ocean Array, etc.) and those
planned to be established within five years, subject to evaluation in terms of the
qualifying criteria by the science team. This would initiate a pilot phase approxi-
mately five years in duration. During this pilot phase, the international science
team and those that deploy and maintain sites will:
identify gaps in the system and encourage filling those gaps;
develop new technology for sensors and moorings;
address implementation of the more challenging sites of critical importance, in-
cluding multi-community and multi-national efforts;
176
identify products and end users and establish routine provision of data from the
sites to users;
establish capacity building programs to enable participation in the observatory
system;
review all operating sites after five years, accept the ones proven useful into the
longer-term system, add new sites for a new trial phase;
complete the deployment of the global array using the new capabilities devel-
oped and reviews conducted; and
work toward a transition to operational status.
An international effort is underway to develop the global array. Sites throughout
the worlds oceans, some already in operation, have been identified for potential im-
plementation based on critical oceanic regions for climate purposes and ecosystem
observations. International partners are evaluating their potential roles in imple-
menting these sites.
Question 3. Should the Administration have a designated Office of Climate Change
within the White House? Would this help to coordinate the science and the policy
for U.S. climate change activities through the various departments and agencies in-
volved?
Answer. In April, President Bush convened a cabinet-level policy review of this
serious, long-term issue. That group has met many times to hear from leading ex-
perts on the issue and developed initial policy recommendations that the President
announced on June 11. Specifically, the President announced the U.S. Climate
Change Research Initiative and the National Climate Change Technology Initiative
that will produce focused, prioritized and coordinated plans for federal scientific re-
search in the next five years and significantly enhance research, development and
deployment of advanced energy and sequestration technologies. Our success in de-
veloping those technologies will determine how effectively we can reduce the pro-
jected growth in greenhouse gases in the United States and internationally. The
cabinet-level review group has continued to meet and plans to continue to do so in
the near future, in order to continue evaluating additional national and inter-
national policy options to address climate change.
This ongoing cabinet-level policy review, along with the initiatives President Bush
has announced to date, demonstrate that he recognizes the seriousness of climate
change issues and that a coordinated response to these issues will have continuing
high prioritization within the Administration. Within the Executive Office of the
President, the Office of Science and Technology Policy and the Council on Environ-
mental Quality provide ongoing coordination for program planning and implementa-
tion of climate change research, monitoring and technology activities at the inter-
agency level. It is therefore unclear that creation of a designated Office of Climate
Change within the White House would result in better coordination of U.S. climate
change science and policy.
Question 4. How should any climate change policy be coordinated with the Energy
Policy Development Group?
Answer. The Presidents high-level climate change working group has overlapping
membership with the Energy Policy Development Group, which ensures coordina-
tion and consistency between the Administrations energy and climate change poli-
cies. In fact, the May 2001 report of the National Energy Policy Development Group
specifically recognized the linkage between the policies, addressing the policy chal-
lenge of climate change directly in chapters 3 and 8. In chapter 3, for example, the
report states: Scientists continue to learn more about global climate change, its
causes, potential impacts, and possible solutions. The United States recognizes the
seriousness of this global issue as scientists attempt to learn more about climate
change... .The United States has reduced greenhouse gas emissions by promoting
energy efficiency and the broader use of renewable energy through a wide range of
public-private partnership programs. These programs save energy, cut energy bills,
enhance economic growth, and reduce emissions of conventional air pollutants as
well as greenhouse gases. Industry and the federal government are researching var-
ious new technologies that will reduce greenhouse gas emissions or sequester those
emissions, in geologic formations, oceans and elsewhere.
And in chapter 8, the NEPD Group recommended that the President direct fed-
eral agencies to support continued research into global climate change; continue ef-
forts to identify environmentally and cost-effective ways to use market mechanisms
and incentives; continue development of new technologies; and cooperate with allies,
including through international processes, to develop technologies, market-based in-
177
centives, and other innovative approaches to address the issue of global climate
change. Importantly, in chapter 8, the NEPD affirmed that the President is com-
mitted to addressing the issue of global climate change in a manner that protects
our environment and economy.
Question 5. Are there current attempts at the Presidents Cabinet level and at the
White House Office for Science and Technology Policy to coordinate both energy and
climate change policies for both domestic and international environmental and en-
ergy strategies? If so, how is this being carried out and by whom?
Answer. The Presidents high-level climate change working group has overlapping
membership with the Energy Policy Development Group, which should facilitate co-
ordination between energy policy and climate change policy.

DAVID G. HAWKINS
Questions. Mr. Hawkins, the Bush Administration appears to be looking at ocean
sequestration of carbon as a solution to the climate change and greenhouse gas
emissions problem. Some have suggested that carbon could be taken up by increas-
ing primary production of the oceans. Others have proposed that carbon be buried
below the mixing zone of the oceans. This sounds a little like ocean disposal to
mebut maybe Im missing something.
What is your understanding of the sophistication of this technology?
How much can we rely on these technologies as a permanent way of taking
carbon out of the atmosphere? How much carbon can oceans absorb?
The oceans have warmed substantially all over the world in the past 50 years.
What would putting carbon into the oceans do to ocean temperatures?
Answers. NRDC opposes the use of the oceans as disposal sites for carbon dioxide
for a number of reasons. Science is still in the early stages of understanding the
details of ocean ecosystems. Consequently, we have no idea what might be the eco-
system implications of large scale disposal of CO2 into the oceans. Second, because
we have only limited understanding of the movement of currents through the oceans
of the world, we do not have a robust basis to conclude that disposal of CO2 into
oceans would keep those gases out of the atmosphere even for hundreds of years.
With respect to the effect of CO2 disposal on ocean temperature, there would like-
ly be some highly localized cooling of surrounding waters in zones where liquefied
CO2 is disposed. A more important temperature effect is that as warming penetrates
the deep ocean, the capacity of the ocean to hold CO2 is reduced, resulting in release
of CO2 back to the atmosphere.
There is another fundamental flaw in using the ocean as a disposal site. For any
given amount of carbon in the biosphere, the total carbon will be partitioned be-
tween four major areas: the atmosphere, soils, forests and other vegetation, and the
ocean. Absent continued increases in emissions from human activities, the carbon
in the biosphere would equilibrate over thousands to tens of thousands of years
based on the relative concentrations of CO2 in the ocean and the atmosphere. If we
continue to take carbon from the biologically isolated reserves of fossil fuels and
dispose of it in the ocean, we will unavoidably increase the long-term concentra-
tion of CO2 in the atmosphere because the resulting higher concentrations of CO2
in the ocean will increase the concentrations at which the atmosphere and the ocean
equilibrate. More CO2 in the ocean means more CO2 in the atmosphere as the
ocean-atmosphere interface approaches equilibrium.
A final point worth noting is that most if not all forms of ocean disposal would
violate the London Dumping Convention.
In contrast to ocean disposal, deep geological injection of CO2 may hold promise
as a technique for true long-term storage of significant amounts of greenhouse
gases. Much evaluation work on the physical integrity of potential storage sites re-
mains to be done but if pursued as one element of a portfolio of strategies to combat
climate change, geologic storage may prove important as a bridging technique while
world energy systems evolve to zero or minimal carbon options. Geological storage
should not be regarded as a substitute for the critical work of improving the effi-
ciency of energy production and use and increasing the penetration of renewable en-
ergy resources. But geologic storage may hold promise as a supplement to efficiency
and renewable energy programs.
178
DAVID G. HAWKINS
Question 1. What value or weight does the NRDC give to economic impact in its
decision to support immediate action on the emissions reductions of carbon dioxide?
Answer. NRDC places great weight on the issue of the economic impacts of strate-
gies to reduce carbon dioxide. We recognize that if policymakers believe that efforts
to take action now to reduce carbon dioxide will be economically ruinous, they will
resist taking action. We support action now because we believe that very substantial
cuts in carbon dioxide will be required over the long term and to minimize both com-
pliance costs and risks to the environment over the long term it is critical to send
an unmistakable signal to the private sector now that carbon mitigation must be
incorporated into investment and business planning decisions.
We believe that the more sound analyses show that the costs of taking action now
to achieve limited but significant cuts in carbon, such as those called for the 1997
Kyoto Protocol to the Framework Convention on Climate Change, can be achieved
without harming the US economy. Indeed, the Department of Energys Clean En-
ergy Futures study, released in November 2000, shows that an integrated program
of caps on carbon emissions combined with policies to enhance reliance on renewable
energy sources and programs to improve efficiency of energy production and use can
cut carbon emissions dramatically and lower Americans total energy bills by more
than $100 billion per year.
In addition, we believe that establishing a requirement to reduce carbon emis-
sions, when combined with appropriate flexible compliance mechanisms, will un-
leash massive cost minimizing innovations in the private sector as it seeks to find
least cost ways to meet the carbon reduction obligation. The experience of the 1990
acid rain program crafted by the first President Bush is instructive. That program,
which capped SO2 emissions from the electric generating industry at levels about
50% below historic highs, was also opposed as being too costly to adopt when it was
proposed. Estimates were made by industry and government studies that SO2 allow-
ances might cost more than $1000 per ton. Once enacted, however, the law stimu-
lated efforts in industry to find least-cost compliance options and the result was a
range of prices below $100 per ton for much of the programs first decade and still
now below $200 per ton.
Initial cost estimates for new programs are always high because the regulated
community does not set its best and brightest minds to work figuring out how to
minimize compliance costs until the programs become a reality.
Question 2. You have stated some disdain for voluntary pledge to reduce emissions
in your testimony. What do you think about voluntary carbon exchange systems,
such as the Chicago Climate Exchange? Do you believe that these type of programs
can be helpful in reducing greenhouse gas emissions
Answer. Institutions like the Chicago Climate Exchange (CCX) are helpful in de-
veloping and testing the mechanisms that are likely to be relied on extensively in
domestic and international programs to reduce greenhouse gas emissions. Under a
program that caps emissions and allows participants to exchange or trade emissions
to meet their obligations, there will be a need for efficient systems to register offers
and carry out trading transactions. CCX can help develop and test such systems.
In addition, as with other pilot programs, CCX provides a forum for firms that
decide to volunteer with an opportunity to gain experience not just with internal
efforts to reduce greenhouse gas emissions but with real world operation of a sophis-
ticated trading system for such gases.
While CCX may be successful in creating a pilot market for greenhouse gas trad-
ing, it is important to keep in mind that the market is the means to an objective,
not the objective itself. In this case, the objective is to achieve significant reductions
in greenhouse gas emissions. CCX can provide a vehicle for carrying out the objec-
tive but it cannot provide the motivation for a sufficient number of actors to use
the vehicle.
For markets to sustain themselves, there must be a scarcity of the goods that are
trading in the market. As long as greenhouse gas emitters can release their emis-
sions to the atmosphere without cost to the emitter, there will be a sharp limit on
the number of firms that will be willing to commit to a reduction in their emissions
and pay a cost for not meeting that commitment.
Public policy action is needed to create a robust market in greenhouse gases that
can accomplish a significant reduction in emissions. By capping allowable green-
house gas emissions from the important emitting sectors of the economy, Congress
can create the market conditions of a scarce (and therefore valuable) resource that
a voluntary system cannot create.
179
Bills like S. 556, The Clean Power Act of 2001, would cap carbon dioxide and
other major air pollutant emissions from the electric generating sector in a manner
similar to the successful acid rain provisions of the 1990 Clean Air Act amendments.
Under S.556 a market for trading carbon dioxide emissions would rapidly emerge
and in contrast to a voluntary program, large-scale participation and effectiveness
in achieving the objective of reducing emissions by a targeted amount would be as-
sured.
Thus, the benefits of programs like CCX will be enhanced by policy actions to es-
tablish limits on the amount of greenhouse gases that can be freely emitted.
Question 3. An earlier panel discussed different types of renewable energy resources
that can be used to reduce greenhouse gas emissions. Based on your studies, which
resources show the most promise for widespread adoption and effective greenhouse
gas reduction?
Answer. NRDC believes that increased reliance on renewable energy sources is an
essential component of an effective strategy to reduce emissions of greenhouse
gases, in particular carbon dioxide. Solar technologies and wind power, as well as
biomass energy sources all have the promise to become a much larger part of the
U.S. energy mix and NRDC supports efforts to break down market barriers to great-
er penetration of these resources. One important barrier is that the market does not
value today the fact that these technologies do not contribute to the buildup of
greenhouse gases in the atmosphere. This market barrier could be removed by
adopting caps on emissions of greenhouse gases from the energy sector, such as
S.556 would do. Integrating caps with policies to accelerate the expansion of avail-
able and affordable renewable resources would lower the overall costs of complying
with the caps. Accordingly, NRDC supports an integrated policy suite of emission
caps, a renewable portfolio standard, and a public benefits fund that would provide
financial resources for greater reliance on efficiency and renewable energy sources.
Question 4. Some industry representatives have argued that caps on emissions will
create reduced productivity, economic hardship, and increased unemployment. What
is your response to these concerns?
Answer. As I noted in my answer to question 1, when new policies are being de-
bated, Congress is typically confronted with estimates that the policies will be ruin-
ously expensive. History has demonstrated that the actual expense of implementing
reform programs is usually significantly less than pre-enactment estimates for the
very good reason that the entities whose behavior is changed under the reform pro-
gram do not make significant efforts to minimize the costs of compliance until the
policymakers have decided to adopt the reforms.
The current failure of the Congress and the administration to move forward with
effective policies to require mandatory reductions in greenhouse gas emissions will
encourage a wait and see attitude among many firms as long as this indecision
persists. NRDC hopes that Congress will act soon to adopt greenhouse gas reduction
programs. We are confident that the response of the private sector to adoption of
such programs will be to dramatically expand the attention and resources it devotes
to minimizing the costs of reducing greenhouse gases.
There is ample evidence that it is technically feasible to achieve major reductions
of greenhouse gas emissions from key sectors like electric generators and motor ve-
hicles without harm to the U.S. economy. As noted above, the Clean Energy Futures
study by DOE concluded that an integrated policy set of emission caps, renewable
energy programs, and advanced supply and demand-side efficiency programs can re-
duce consumers energy bills by over $100 billion per year and cut carbon dioxide
emissions by 30% from business as usual forecasts.
RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. ERNEST F. HOLLINGS TO DR.

DANIEL M. KAMMEN
Benefits to the U.S. Economy from Technology Development
Question 1. What kinds of technologies are our best bet for technology transfer and
export advancement over the next 10 years.
Answer. Changes in the economies of both developed and developing nations over
the next decade are likely to only accelerate the trends of: (1) the need for far great-
er flexibility in the security of energy services; (2) the need for energy services tai-
lored to fit the needs of individual businesses, homes, and vehicles. Renewable en-
ergy systemsnotably solar photovoltaic and solar thermal systems, windmills, bio-
mass energy systems, and fuel cellsare each technologies that meet these de-
mands (1 & 2, above). It is particularly important for energy systems to be able to
deliver energy at any scale, from less than a mega-watt (MW) to 10 MW or more
180
reliably, and at least cost. The tragic attacks on both the Pentagon and the World
Trade Center among other things illustrate the need for energy security, and quality
in a distributed, often stand-alone fashion. Each of the renewable energy systems
listed above can meet these conditions, and provide modular energy services that
fit the needs of emerging markets in both developing and developed nations. Fur-
ther, these are precisely what emerging distributed generation systems in the U.S.
will need to move towards a clean, low-cost energy system. At present the U. S is
lagging nations such as Japan (PV), Denmark and Germany (Wind), and Canada
(Fuel Cells) in developing and commercializing these technologies each of which saw
their initial development phase take place in the United States. Added material on
the decline of R&D support for this critical emerging clean energy market can be
found in two recent papers I co-authored with my doctoral student Robert Margolis
(Margolis and Kammen 1999, 2001).
Margolis, R. M. and Kammen, D. M. (2001) Energy R&D and Innovation: Chal-
lenges and Opportunities in Schneider, S, A Rosencranz, and J. Niles, editors A
Reader in Climate Change Policy (Island Press: Washington, DC).
Margolis, R. and Kammen, D. M. (1999) Underinvestment: The energy technology
and R&D policy challenge, Science, 285, 690692. WWW: http://socrates.
berkeley.edu/rael/Margolis&Kammen-Science-R&D.pdf
Question 2. What role will an international agreement on emissions reduction play
will it hurt or help the US ability to take a lead role in these technologies.
Answer. Contrary to some of the claims about the Kyoto Protocol (and now the
Bonn Compromise), recent analysis indicates that by taking a leadership position
on the prevention of global warming, the U.S. will benefit financially. The lack of
support for the global warming treaty that the current U.S. administration has
shown is therefore particularly troubling.
A range of studies are all coming to the conclusion that simple but sustained
standards and investments in a clean energy economy are not only possible but
would be highly beneficial to our nations future prosperity.i A recent analysis of the
whole economy shows that we can easily meet Kyoto type targets with a net in-
crease of 1 percent in the Nations GDP 2020.ii The types of energy efficiency and
renewable technologies and policies described here have already proven successful
and cost-effective at the national and state level. I argue that this is even more rea-
son to increase their support. Figure 14 in my testimony shows how a combination
of readily available options can be used to meet the Kyoto Protocol targets. This
type of strategy would cost-effectively enable us to meet goals of GHG emission re-
ductions while providing a sustainable clean energy future.
Krause, F., DeCanio, S, and Baer, P. (2001) Cutting Carbon Emissions at a Profit:
Opportunities for the U.S., (International Project for Sustainable Energy Paths:
El Cerrito, CA), May.
Question 3. Should we be using programs in the Department of Commerce like the
Commercial Service to start exporting our existing technologies overseas?
Answer. As discussed in my testimony, we have decades of experience that market
support and expansion through a combination of technology push (i.e. support for
R&D) and demand pull (i.e. domestic and overseas technology education and mar-
ket support) provide the best recipe for economic expansion. Clean energy tech-
nologies are no exception, and, in fact, show far larger returns on the investment
than do older technologies such as fossil-fuels. In a recent paper, I detail the bene-
fits that the U.S. has achieved through this sort of integrated technology policy in
the energy efficiency as well as the renewable energy sector (Duke and Kammen,
1999). The Department of Commerce, as well as US AID and the Department of En-
ergy as well as the U.S. EPA all provide opportunities to support clean energy mar-
ket expansion. In the past these efforts have been scattered, and often uncoordi-
nated. I recommend that an Office of Clean Energy Commerce be established to uti-
lize the changing technology base as well as the latest economic and policy measures
to help the U.S. recapture its leadership role in this area.
Duke, R. D., and Kammen, D. M. (1999) The economics of energy market trans-
formation initiatives, The Energy Journal, 20 (4), 1564. WWW: http://socrates.
berkeley.edu/dkammen/dukekammen.pdf
Question 4. What do we need to do to get our R&D investment out to the market?
Answer. Certainly a key part of making effective R&D investments is also sup-
porting demand pull policies, as indicated in the response the question above. The
i Interlaboratory Working Group.

ii Krause, F., et al, op cit.
181
other key issue, however, is to demonstrate a sustained commitment and support
for clean energy technologies. As detailed in Margolis and Kammen (1999) as well
as in my written testimony, federal support for R&D has been episodic, consisting
of boom and bust cycles. Research, development and dissemination, however, re-
quires time to bring new ideas to market, and to overcome barriers in both the ini-
tial technology and in market economics. This can best be accomplished by dem-
onstrating to the investors in new areassuch as renewable energythat R&D and
market support will not evaporate in the next budget cycle.
berkeley.edu/rael/Margolis&Kammen-Science-R&D.pdf
NIST Role in Efficiency Standards
Question 5. What can NIST do to help the renewables and energy efficiency sector.
Answer. The greatest barrier that renewable energy and energy efficiency tech-
nologies face is simply that of barriers to enter the commercial energy market in
the form of subsidies for fossil fuels. Coal, oil, gas, and nuclear energy all have very
large subsidies, either through direct support, or through implicit subsidies in U.S.
infrastructure, military actions, or political support. These are not always unreason-
able, but they prevent our energy economy from becoming diverse, secure, and inno-
vative. The following table, from my written testimony, highlights the degree of sup-
port for the fossil fuel and nuclear industry at the expense of other technologies,
such as renewables.
NIST could play a significant role in evening this economic playing field. Cur-
rently, few standards exist that explicitly reward clean air, human and environ-
mental health. Several studies, for example, have found that the direct health im-
pacts of coal burning rival the traditional economic cost of coal (i.e. doubling the 3
5 cents/kilowatt hour cost of electricity from coal. NIST could examine the set of
metrics it uses and make recommendations for energy generation technologies that
meet these standards. Regional air quality, greenhouse gases, air and watershed
protection, and energy security through efficient use of energy could all be measures
that NIST recommends and measures. Instituting these measures would signifi-
cantly level the playing field while providing direct economic and health benefits to
the U.S.
PRIMARY ENERGY SUPPLY DIRECT EXPENDITURES and

1998 CONSUMPTION TAX EXPENDITURES (1999)
FUEL SOURCE VALUE VALUE
(quads, quad- PERCENT PERCENT
(million $)
rillion BTU)
Oil 36.57 40% 263 16%
Natural Gas 21.84 24% 1,048 64%

Alternative Fuels Credit (1,030)
Coal 21.62 24% 85 5%
Oil, Gas, Coal Combined 205 12%
Nuclear 7.16 8% 0
Renewables 3.48 4% 19 1%
Electricity 40 2%
Total 90.67 100% 1,660 100%

Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 1999:
Primary Energy, (Washington, DC: DOE, 1999).
Question 6. How can they (NIST) assist other agencies, whether state or federal in
improving our energy efficiency and increasing the availability of renewable energy
to consumers.
Answer. There is a great deal that can be done to work across agencies to expand
the role of clean energy in our society. Energy efficiency and environmental stand-
ards, if written to challenge the industry and encourage innovation provide the best,
182
market based, means to clean-up our energy mix. The California Zero Emission Ve-
hicle (ZEV) Mandate both accelerated the development of hybrid, fuel-cell, and bat-
tery-powered vehicles, but also rapidly accelerated the automotive industry around
the world to produce far cleaner internal combustion engines. Thus, a clear, aggres-
sive standard provided better existing technology and accelerated the development
of a new industry.
As discussed in my written testimony, a Renewable Portfolio Standard (RPS) pro-
vides one of the best means to use the market to spur a larger clean energy compo-
nent in our energy mix. An RPS is legislation which places an obligation on all
sellers of power to the retail market to demonstrate through ownership of renew-
able energy credits that they have supported the production of a certain amount
of electricity from qualifying renewable sources. These credits can come from either
their own renewable power generating facilities, buying renewable power from other
sources, or simply buying renewable energy credits. A renewable energy credit rep-
resents the environmental value of the kilowatt-hours generated from renewables,
with the market price set through the flexible trading of these credits. The purpose
of the RPS is to open the markets to clean energy production by ensuring the swift
penetration of renewable energy into competitive electricity markets so as to bring
down the costs until such a purchase obligation is no longer necessary.
An RPS has now been signed into law by at least 10 states: Arizona, Connecticut,
Maine, Massachusetts, Nevada, New Jersey, New Mexico, Pennsylvania, Texas, and
Wisconsin. Minnesota and Iowa also have a minimum renewables requirement simi-
lar to an RPS. Bills that include an RPS are pending in several other states. Al-
though 12 States is a good start it is difficult to determine how many will ultimately
pass comprehensive and effective RPS laws. If the number of states remain small
then the U.S. will ultimately miss or greatly delay the opportunity to build a sizable
market for renewables. Only with a healthy and significant renewable energy mar-
ket can this industry become commercially viable, so that we may all benefit from
the energy security and environmental quality that renewable energy can provide.
A national market for clean energy will have a dramatic impact on driving down
the costs of renewable energy technologies and moving these technologies fully into
the marketplace. A patchwork of state policies would simply not be able to achieve
this goal. In addition, state RPS policies have so far differed substantially from each
other. This could cause significant market inefficiencies negating the cost savings
that a more comprehensive, streamlined, market-based federal RPS package would
give.
Second, not every state program is set up effectively. A successful RPS requires
several critical components. These include:
The obligation to buy renewables must apply equally to all sellers of electricity
There must be a system of tradable renewable energy credits this will achieve
the renewables goal at least cost
Demand must outstrip supply by setting the obligation at either the level of ex-
isting renewables, increasing it from that point; or by excluding existing renew-
ables; or by using separate tiers for existing and new renewables
The obligation must rise gradually and predictably to ensure a stable market
Stiff penalties must be imposed on market players that do not comply with the
obligation to buy renewables; the penalty must significantly exceed the cost of
compliance
Requirements for new renewables should begin at least two years after all regu-
lations are final to allow time for competition among all potential suppliers
The RPS must be long term, continuing until renewable kWh prices drop to
competitive market levels at which point the RPS will sunset
Qualifying renewables must be limited to those that need market support (i.e.,
not large hydropower) and meet certain clean environmental criteria
There must be flexibility for meeting the obligation, with a limited period for
making up shortfalls, a system of credit banking, and an exemption provision
for the case of extreme events.
If any of these above criteria are not properly detailed in RPS legislation then the
program will likely be either ineffective or operate suboptimally. To date, except for
Texas, each of the states mentioned above have left out some number of these crit-
ical elements and consequently their RPS programs are not proving as successful
as they should be at encouraging renewables growth. Such a track record is worri-
183
some if an RPS is to promote the level of renewable energy growth that we need
in this country to achieve a sustainable clean energy future.
It is for these reasons that I strongly recommend the implementation of a federal
RPS that incorporates at a minimum all the elements listed above.
An RPS represents one of the best uses of true market forces, where policy sets
the standard but economic competition is used to meet that target. The many eco-
nomic, environmental, health, and social benefits of clean energy generation makes
this a natural area for federal legislative action.
NIST, working with the Department of Energy and the U. S EPA and Department
of Commerce could, as indicated above, set clear standards for a clean energy com-
ponent, and work to certify and support the development of new renewable energy
technologies.

DR. DANIEL M. KAMMEN
Question 1. You mentioned in your written statement that some of the options for
achieving energy supply and demand balance have not been given adequate atten-
tion. What are some of those options.
Answer. A number of policies are available to increase the supply of renewable
energy. Among the most logical to support are: (1) a Renewable Energy Portfolio
Standard, RPS, (as discussed above); (2) consistent cost accounting across tech-
nologies that reflect the true social cost of energy, including the health, security, and
environmental impacts.
(1) As indicated in my testimony, an RPS (for example 10% in 2010, rising to 20%
in 2020) takes advantage of market forces to open historically biased energy mar-
kets to competition, while at the same time putting a premium on clean energy.
This makes economic, security, and environmental sense.
(2) Consistent accounting, involving the life-cycle costs of different energy options,
has not been practiced in the past, yet provide the best mechanism for inter-tech-
nology comparisons between both fossil-fuel and alternative energy technologies.
Question 2. Does your industry use some standard evaluation metric such as kilo-
watt hour per dollar invested, whereby we can evaluate their different technologies
on a common basis.
Answer. As indicated above (item 2) consistent comparisons between energy tech-
nologies has not been widely practiced, largely due to: (1) the hidden subsidies in-
herent in many fossil fuel as well as nuclear energy technologies; and (2) the lack
of accounting for so-called externalities of air and water quality, health, and energy
security (import dependence). A national studyconducted by the National Acad-
emy or by an inter-agency team, could provide the basis to provide the sort of con-
sistent measurement metric that you describe. I strongly support such an initiative.
Question 3. In your testimony, you state that the current focus on energy issues has,
fostered an ill-founded rush for quick fix solutions that will ultimately do the
country more harm than good. Could you please explain how concerns about an
energy crisis can end up actually hurting efforts to study renewable energy sources?
Answer. There are two aspects of the current energy crisis that have ironically
discouraged investment in clean energy options:
(1) In the rush to address the energy crisis, expansion of gas-fired electricity ca-
pacity has been pushed by a number of political figures. Over 90% of new power
plants planned in the Western U.S., for example, are set to be gas fired. This rep-
resents a huge over-investment in a single energy source, both on economic and en-
ergy security grounds. This expansion of gas-fired generation locks-in one tech-
nology, possibly for decades, and crowds out renewable energy technologies, even
those that are lower cost on a life-cycle basis. This is bad economics and bad policy.
Energy diversity is the most critically needed change in the energy economy.
(2) The U.S. energy R&D budget is relatively small given the central role of en-
ergy to the U.S. economy. Over-emphasis on energy sectorsuch as gasrestricts
the support available for R&D in other areas. We have seen this time and time
again in U.S. energy policy (see, for example, Margolis and Kammen, 1999). A log-
ical, and economically prudent, approach, would be to use the sort of market-based
approach to diversity the energy mix that could be achieved with an aggressive Re-
newable Energy Portfolio Standard (RPS) that I describe in my written testimony,
or through the sort of life-cycle cost accounting and comparisons discussed above.
berkeley.edu/rael/Margolis&Kammen-Science-R&D.pdf.
184
Question 4. Your testimony highlights a recent revolution in the cost and tech-
nologies for renewable energy resources. Could you please explain the factors that
created this revolution?
Answer. The last decade has seen dramatic decreases in cost, and increases in
performance, of solar, wind, and biomass energy technologies, as well as in hybrid
vehicles, energy efficient lighting and fuel cells. In each case, a mixture of tech-
nology push and demand pull policies has created the opportunity and facilitated
market growth for a new, clean technology. In the U.S. and overseas, in fact, we
have seen that a combination of technology push (i.e. support for R&D) and de-
mand pull (i.e. domestic and overseas technology education and market support)
provide the best recipe for economic expansion. Clean energy technologies are no ex-
ception, and, in fact, show far larger returns on the investment than do older tech-
nologies such as fossil-fuels. In a recent paper, I detail the benefits that the U.S.
has achieved through this sort of integrated technology policy in the energy effi-
ciency as well as the renewable energy sector (Duke and Kammen, 1999).
Duke, R. D., and Kammen, D. M. (1999) The economics of energy market trans-
formation initiatives, The Energy Journal, 20 (4), 1564. WWW: http://socrates.
berkeley.edu/dkammen/dukekammen.pdf.

MAUREEN KOETZ
Question 1. If a favorable decision is reached on the long-term storage of spent fuel
at Yucca Mountain, what would that mean for the nuclear industry?
Answer. The Nuclear Energy Institute agrees with the views of Nuclear Regu-
latory Commission Chairman Richard Merserve that purely from a technical per-
spective, . . . the establishment of a disposal site need not be a precondition for new
construction. NEI also holds the view that establishment of a used fuel repository
is not a precondition for increased output from existing facilities, completion of par-
tially constructed facilities for future operation, or plant relicensing. Several facili-
ties have already been issued 20-year extensions on their licenses, and during the
1990s, the increased output from existing nuclear facilities was the equivalent of
building 22 new 1000-megawatt reactors and running them at 90 percent capacity.
Neither enhancement of nuclear operations created an adverse effect on our ability
to manage used fuel.
Ongoing nuclear fuel management practices represent one of the most successful
solid waste management systems ever implemented for an industrial process involv-
ing hazardous material, and these successful efforts will continue through on-site
pool and dry cask storage while a long-term geologic repository is made ready. How-
ever, the industry also believes that a centralized repository to hold used fuel and
other by-product nuclear materials must proceed with all deliberate speed. Since
1983, American electricity consumers have committed almost $18 billion to the Nu-
clear Waste Fund specifically to finance the federal management of used fuel, in-
cluding $458 million by the ratepayers of Arizona. The Fund has a balance of about
$10 billion, which must be made available for facility construction and operation.
Nuclear plant owners and operators are currently unfairly disadvantaged by the
failure of the federal government to meet its obligations under the Nuclear Waste
Policy Act to begin removal of used fuel from commercial facilities by 1998. These
utilities and their customers have paid for a centralized facility, yet continue to
have to pay for on-site storage as well. As competition develops in the electricity
market, forcing double payments of this kind act as a hidden tax by the federal gov-
ernment on one of the cleanest forms of electricity available, distorting the market,
and potentially undermining our future contribution to meeting environmental goals
like managing the risk of climate change.
The Federal governments failure to meet its obligation could also expose a funda-
mental hypocrisy in our support for environmental protection goals and principles.
All our waste management laws and programs are based on the premise that haz-
ardous material should only remain on a production site long enough to be accumu-
lated, packaged, and manifestedit should then be brought to a centralized facility
where it can be best treated, stored or disposed of. For every other hazardous mate-
rial handled in the United States, centralized facilities (usually designated as haz-
ardous waste landfills) are open and operating in order to best protect the environ-
ment. In some cases, keeping hazardous material on a production site in excess of
90 days constitutes a violation of federal law. These other hazardous materials are
routinely transported on public roads through populated areas in containers far less
robust that those used to transport spent fuel. Our waste management programs
185
should not have two inconsistent systems for managing hazardous materials simply
to satisfy political preferences at the expense of effective environmental protection.
The failure to complete and open a hazardous materials center for used radio-
active fuel creates uncertainty in the future development of nuclear plants, threat-
ens continued operation if states act politically to limit onsite storage, and under-
mines effective management of all hazardous materials nationwide. It also casts an
unnecessary shadow on the single most effective technology available for eliminating
greenhouse gas emissions that also supports economic growth. And although not a
direct issue for commercial plant operation, the absence of a long-term disposal site
can interfere with meeting cleanup deadlines at weapons complex facilities.
A favorable decision at Yucca Mountain would mean electricity consumers would
finally get what they paid for, but more importantly, our nation would have a com-
plete program that ensures environmental and health protection in the management
of used fuel and other radioactive materials. It will also support the continued avail-
ability of a major tool to maintain our air quality.
Question 2. Can you comment on the status of standardized reactor designs? Is
there a need for additional research?
Answer. The United States has always been the world leader in nuclear tech-
nologies. The industry has been working to set the stage for construction of new ad-
vanced design nuclear plants that will have more automatic safety systems and will
be even more reliable and economical.
The NRC already has certified three such designs. Two units using a design by
General Electric have been built and are setting world-class performance records in
Japan, while others of this design are under construction in Japan and Taiwan. A
variation of another certified design is being developed in Korea.
There are three additional reactor designs that are being studied for possible fu-
ture use. The Pebble Bed Modular Reactor is currently undergoing feasibility stud-
ies in South Africa, and Westinghouse is determining whether to proceed with for-
mal NRC review of its AP1000 concepta larger-scaled version of the already ap-
proved AP 600. In addition, General Atomics is considering commercialization of a
gas-cooled reactor being developed that uses plutonium fuel from stockpiles of Rus-
sian weapons.
Beyond advanced reactor designs, industry executives have come togethercon-
tributing personnel, funding and guidanceto develop a plan that will mark a clear
path for new nuclear plant orders. This plan for the future considers safety stand-
ards and objectives; NRC licensing requirements; policy and legislative implications;
capital investment needs and changing business conditions. This effort is tied to the
nuclear industry goal of building 50,000 megawatts of new capacity by the year
2020 in support of efforts to protect air quality and curb greenhouse gas emissions
while maintaining a reliable electricity supply. Notably, developing 50,000
megawatts of new nuclear will only hold constant our current level of 30 percent
emission-free electricity to support current and future emission control goals.
The ability to bring new nuclear plants to market in a timely manner must be
demonstrated, however. The licensing process for future plants was laid out in the
1992 Energy Policy Act and has the potential to correct problems of the past. In
particular, it allows for early resolution of safety and siting issues, and ample oppor-
tunities for public involvement, well in advance of large capital investments. There
is a role for the Federal Government in assuring that the first-time implementation
of this process does, in fact, meet the intent of Congress and the needs of the indus-
try, regulators, and the public. Experience with certification of the three existing ad-
vanced reactor designs has shown the effectiveness of DOE-industry cost sharing.
A similar effort to demonstrate the siting and plant licensing process would resolve
many open questions and expedite business decisions to order new nuclear plants.
Research will remain key to achieving these goals. The United States Government
has a right to be proud of its long history supporting scientific research and develop-
ment. A key part of U.S. success in the world economy is the result of technical ad-
vancements that were translated into commercial applications to advance our
knowledge, standards of living, longevity, protection of the environment, and sup-
port democratic and free market principles around the world. For these reasons, we
should always support research to advance technology and the human condition. In
the case of nuclear electricity, advanced reactors, improved fuel designs, and oper-
ational enhancements all stem from research and development. Continuing this ef-
fort is one of the recommendations on future R&D by the Presidents Committee of
Advisors on Science and Technology (PCAST).
Our nations research in nuclear energy has paid dividends in many categories for
over four decades. Past research investment has improved safety, reliability, fuel
and operational efficiency, and proliferation resistance at commercial electricity
186
plants. Nuclear research also supports our weapons programs to promote national
security, reduce nuclear proliferation, and improve waste management practices at
defense nuclear sites. Advanced designs are needed in international markets, cre-
ating trade and technology transfer benefits for both the United States and emerg-
ing economies in need of safe, environmentally sound electricity production.
But perhaps the largest dividend paid by nuclear research has been clean air. On
an annual basis, generating electricity from nuclear reactors instead of alternative
baseload sources prevents or avoids over 4 million tons of sulfur dioxide emissions,
2 million tons of nitrogen oxide emissions, 174 million tons of carbon (or 1 trillion
pounds of carbon dioxide), particulate matter and mercury. This benefit cannot be
duplicated or replaced. To maintain the contribution from this secure, emission-free
source, developing advanced, standardized reactor designs for the immediate- and
long-term must remain a key component of the energy/environmental policy of the
United States over the next several decades. Research should not only continue, but
expand.
Question 3. You have testified that U.S. policy originally envisioned recycling reactor
fuel to separate out small volumes of waste, and that research continues on recy-
cling fuel. Could you please describe the status of this research, when a program
for recycling reactor fuel might be implemented, and how greatly a recycling pro-
gram would reduce nuclear waste?
Answer. President Bushs National Energy Policy proposes to reconsider the op-
tion to recycle nuclear fuel. In 1977, President Jimmy Carter effectively banned civil
reprocessing indefinitely in the United States to discourage other countries from
similar programs, but this policy failed. President Ronald Reagan lifted the ban on
commercial reprocessing in 1981, but by that time, abundant uranium resources had
been found, the cost of recycled fuel far exceeded the cost of new fuel, and projec-
tions of uranium demand were falling due to plant cancellations. World uranium
supplies are currently estimated to last 175 years without accounting for further ex-
ploration of anticipated reserves. However, growing electricity needs around the
world, especially for cleaner fuel supplies, may lead to an increased rate of use for
new fuel.
Ensuring sustainable developmentcoupled with the need to conserve fossil alter-
natives, such as gas, that supply other industrial and residential applicationsmay
requiring more use of recycled as well as new uranium fuel in the long-term. Accord-
ing to British Nuclear Fuels, Ltd, a recycling company in Britain, 97% of fuel can
be recycled and each ton reused saves about 100,000 barrels of oil. Recycling could
increase the energy extracted from nuclear fuel by factors of 10100, while at the
same time reducing the volume of residual wastes that would eventually have to
be stored in geologic repositories.
Two major areas of research are currently ongoing to improve the fuel recycling
processes: electrometallurgical/pyroprocessing technology at Argonne National Lab-
oratory, that would separate usable fuel material from wastes without producing
weapons-usable plutonium; and transmutation of waste products to reduce residual
radioactivity. Both are still in very preliminary stages of research.
However, the potential advantages of fuel recycling must be balanced against the
overall economics of the fuel cycle, and the safety, radioactive emission, and pro-
liferation potential inherent in fuel recycling technology. NEI strongly believes that
the commercial nuclear fuel cycle should not create an unacceptable future prolifera-
tion risk. Advanced recycling technology may improve upon the proliferation resist-
ance of the once-through commercial nuclear fuel cycle and further reduce the po-
tential for diversion of nuclear materials for non-peaceful purposes. Innovations and
improvements developed in the United States can improve recycling processes in
countries where recycled fuel is used. However, in both once-through or recycled fuel
systems, a geologic repository will be needed to provide a safe storage and disposal
facility as part of the nuclear waste management system.
According to the Nuclear Energy Agency (NEA) in Paris, the concept of separation
and transmutation of radioactive waste products should be explored and has the po-
tential to contribute to the improved management of radioactive waste by reducing
the proportion of long-lived isotopes it contains. Again, NEA is clear that it should
not be considered as an alternative to deep geological disposal, and should not be
presented as such. In addition, recycled materials will always create a certain
amount of residue that can only be managed in a long-term repository. So irrespec-
tive of whether fuel recycling is pursued, geologic storage capability is always nec-
essary.
Is the commercial industry prepared to deal with the security concerns surrounding
the reprocessing of spent fuel?
187
Answer. Fuel recycling would only occur in the United States when economical
to do so for electricity ratepayers. If recycled fuel were to be used, all the facilities
used in the recycling process would be scrutinized and licensed by the Nuclear Reg-
ulatory Commission with all necessary safeguards in place. Experience with fuel re-
cycling in France and Great Britain has demonstrated that a safe and proliferation-
resistant system is both possible and successful.
Question 4. What levels of operations efficiency have been achieved by the nuclear
industry to increase production at existing plants? How much more can be achieved?
Answer. The 103 nuclear plants in the United States produced 755 billion kilo-
watt hours in 2000, 20 percent of the nations electricity. Since 1980, the capacity
factor (or efficiency rate of plant utilization) has increased from 57 to 89.6 percent.
Since 1990, the increased output at nuclear facilities has been the equivalent of
building 22 additional 1000 megawatt plants with no significant adverse impacts to
the environment (please see attached charts). This increase satisfied 22 percent of
the growth in U.S. electricity demand over that time period.
It is expected that anywhere from 1012,000 additional megawatts of output are
still available from existing plants through additional operation efficiencies and ca-
pacity uprates.
Question 5. One of the publics major concerns about nuclear energy is safety, espe-
cially after Three-Mile Island, Chernobyl, and recent problems at Japanese nuclear
facilities. Could you briefly describe what safety precautions are taken by American
nuclear reactor operators to ensure safety in the United States?
Answer. Safety is ensured at nuclear power plants in the United States according
to four interlocking steps:
1. extensive government regulations have been established to protect the pub-
lic,
2. nuclear plants are built according to designs that meet the regulations,
3. owners are required to operate the plants according to approved specifica-
tions and abide by strict controls on changing the designs, and
4. regulators monitor operations and compliance with regulations through
resident inspectors stationed at every site.
Multiple redundant safety systems. Nuclear plants are designed according to
a defense in depth philosophy that requires redundant, diverse, reliable safety sys-
tems. Two or more safety systems perform key functions independently, such that,
if one fails, there is always another to back it up, providing continuous protection.
Highly reliable automated safety systems. A nuclear plant has numerous
built-in sensors to watch temperature, pressure, water level, and other indicators
important to safety. The sensors are connected to control and protection systems
that adjust or shut down the plant, immediately and automatically, when pre-set
safety parameters are approached or breached.
Physical barriers safely contain radiation and provide emergency protec-
tion. Beginning with the nuclear fuel itself, fuel pellets are ceramic, locking inside
the radioactive byproducts of the fission reaction. Three physical barriers are engi-
neered to provide formidable defense-in-depth against the uncontrolled release of ra-
diation. First, the fuel pellets are sealed inside rods made of special metal designed
to contain fission products. Next, the fuel rod assemblies are contained within a
large, thick steel reactor vessel. Lastly, the reactor vessel and extensive safety and
steam generation equipment are enclosed, in turn, in a massive, reinforced steel and
concrete structure, the containment, whose walls are three to four feet thick. The
containment ensures that the Chernobyl accident of 1986 a substantial radiation
leak could not occur in the United States.
Multiple controls on the chain reaction. Control rods present in the reactor
are adjusted to regulate the reaction by absorbing neutrons. In addition, the water
level inside the reactor also moderates the reaction. Water ordinarily facilitates the
reaction, but the greater the reaction and the greater the heat produced, the more
water is turned to steam, leaving less to promote the reaction. In this way, the reac-
tion is automatically moderated. Moreover, if the water were ever lost, multiple
emergency cooling systems would activate to make up the water loss and keep the
reactor from overheating.
Long-term maintenance for plant safety. Nuclear plant owners are contin-
ually implementing life cycle management, a long-term plan for maintaining the
plants systems, structures, and components in good working order. Preventive main-
tenance consists of routine, scheduled activities to keep a plants safety as well as
non-safety equipment running or capable of functioning if needed. With more than
188
35 years of experience, plant operators have learned how systems wear and can re-
furbish or replace the vast majority before they fail. Corrective maintenance is per-
formed on equipment that fails routine testing, breaks down during operation, or
does not perform adequately. When the operation of an important component de-
grades or fails, plant operators conduct detailed, root-cause analyses, take corrective
action, and share the lessons learned with all other plant operators throughout the
industry and with regulators.
Plant fire protection receives special focus. Consistent with the defense in
depth safety philosophy, there are multiple approaches to fire protection at a nu-
clear plant. Prevention programs, such as administrative procedures, inspections,
and employee training, ensure the safe control of combustible materials and ignition
sources. Detection and suppression systems and trained personnel are ready to con-
trol and extinguish quickly any fire that might occur. Plant design, intended to min-
imize the effect of fires on essential functions, specifies some combination of combus-
tible-free separation, fire barrier, and fire detection and suppression systems be-
tween one set of systems and its back-up set.
Industry-wide personnel training program for safe plant operation.
Through the Institute of Nuclear Power Operations (INPO), the nuclear energy in-
dustry maintains a comprehensive system of training and qualification for all key
positions at nuclear power plants. Workers involved in operations, maintenance, and
other technical areas undergo periodic training and assessment. INPO developed in-
dustry-wide training and qualification guidelines and established procedures and
criteria for training program accreditation. The National Academy for Nuclear
Training integrates and standardizes the training efforts of INPO and all U.S. nu-
clear plant owners and operators. Each plant training program must renew its ac-
creditation every four years. In addition, the NRC routinely monitors plant training
programs and administers initial licensing examinations for plant operators.
Plant security protects against sabotage. Plant security resources and proce-
dures are designed to prevent a hypothetical intrusion involving a paramilitary force
armed with automatic weapons and explosives. Security measures include physical
barriers and illuminated isolation zones; well-trained and well-equipped guards; sur-
veillance and patrols of the perimeter fence; search of all entering vehicles and per-
sons; intrusion detection aids, such as closed-circuit television and alarm devices;
bullet-resisting barriers to critical areas; a contingency reaction force; coordinated
emergency plans with off-site police, fire, and emergency management organiza-
tions; and regular drills and periodic procedural reviews. Employees undergo a vari-
ety of tests and record checks before obtaining various levels of security clearance,
which is controlled by electronic key cards. Employees with unescorted access are
subject to continual behavioral observation programs.
Technical Specifications, which are part of the operating license, place limits on
how long key portions of safety systems can be out of service before the plant must
be shutdown. In addition, technical specifications also require extensive surveillance
tests at specified intervals to ensure that key safety systems are capable of per-
forming their intended safety functions.
Reactor Oversight Process is an extensive performance monitoring program con-
ducted by the NRC to ensure that licensees are performing to high standards of
safety in seven key areas: minimizing initiating events, ensuring safety systems are
capable of performing their function; ensuring the barriers to radionuclide release
are maintained; establishing an effective emergency plan capability; controlling pub-
lic radiation exposures from routine operations are maintained well within Federal
standards; ensuring occupational radiation exposure is minimized and ensuring
strict security measures are maintained. The baseline program includes approxi-
mately 2500 NRC inspection hours at each facility per year. The process considers
the safety significance of identified performance issues and precipitates increased
inspection activity based on the safety significance until the performance issue is
corrected.
189

WILLIAM T. MILLER
Question 1. What are the current limiting factors for producing hydrogen?
Answer. Hydrogen production from fossil fuels is not an issue. Hydrogen for Inter-
national Fuel Cells (IFC) installed base of 220 stationary 200 kW PC25TM fuel cell
power plants is derived from hydrocarbon feedstocks such as natural gas, propane
and methane by using proprietary fuel processing technology.
For mobile fuel cell applications, IFC is working with the Department of Energy
to develop fuel-processing capability onboard the automobile. This will enable vehi-
cles to use pump grade gasoline in combination with fuel cells as a transition strat-
egy until the necessary hydrogen infrastructure is in place.
Ultimately, the most cost-effective and environmentally sound approach is to fuel
the vehicle directly with hydrogen and avoid carrying fuel-processing capability on-
board the vehicle. This would require introduction of on-site fuel processors with hy-
drogen storage and dispensing capability. IFC believes that transit buses and gov-
ernment and private fleet vehicles offer the strategic path for deployment of the nec-
710koeq2.eps
710koeq1.eps
190
essary hydrogen infrastructure since these vehicles return to a central location each
day.
In the long term, to achieve the maximum environmental benefit of fuel cells, we
need to develop technology that can produce hydrogen from renewable energy
sources instead of fossil fuels for stationary and mobile fuel cell applications.
Question 2. Where could Congress direct our efforts to support increasing the supply
of hydrogen?
Answer. In general, Congress can help increase the supply of hydrogen by pro-
viding funding for hydrogen research programs that reduce fuel cell manufacturing
costs and improve performance and efficiency. Funding for small fleet demonstra-
tions is also necessary to document the operability, durability and viability of fuel
cell powered vehicles.
Hydrogen fleet vehicle demonstration and development programs in both the gov-
ernment (including the military) and private sector could also be used to stimulate
the market for hydrogen through government procurement of fleet vehicles powered
by hydrogen. In addition, theres an important role for Congress in helping to edu-
cate the public concerning the safe use of hydrogen and the development of nec-
essary codes and technical standards.
Legislation currently pending before the Senate addresses these needed programs.
The Energy Independence Act of 2001 (S. 883) includes provisions that would create
hydrogen fuel cell demonstration programs for commercial, residential and transpor-
tation applications including buses. In addition, S. 883 provides grants for state and
local governments to deploy fuel cell technology and directs the federal purchase of
fuel cells for stationary use and development of plans for deployment of fuel cells
in federal vehicle fleets.
The Hydrogen Future Act (S. 1053) also provides a roadmap for needed hydrogen
research, development and demonstration initiatives. Section 9 of S. 1053 lays out
a strategy for the establishment of hydrogen power parks that integrates the use
of stationary and mobile fuel cells. Under this concept, hydrogen fueled fuel cell
power plants would be installed and generate electricity until the market for hydro-
gen vehicles matures.
In addition, Congress can provide incentives to the hydrogen producers as fuel cell
vehicle deployment becomes imminent to encourage the expansion of hydrogen pro-
duction capacity and retail distribution outlets.
Question 3. Is using hydrogen as a fuel source such a high-cost option that it will
never make sense on a large-scale? Alternately, are current fuel sources good
enough, especially when compared to other types of power production?
Answer. Hydrogen is not a high cost fuel option. In recent analyses, conducted by
a study team at Directed Technologies Incorporated, it was shown that for fuel cell
vehicles hydrogen is the least cost fuel option when compared with gasoline and
methanol. The cost of hydrogen use was calculated to be about 2.6 cents/mile. The
study, sponsored by the U.S. Department of Energy and the Ford Motor Company,
is reported in the International Journal of Hydrogen Energy 25 (2000) pages 551
567.
The study also concluded that hydrogen is the preferred fuel in terms of:
1) Least infrastructure cost per vehicle. Specifically the authors note: Gaso-
line was projected to require the greatest infrastructure cost in the form of rel-
atively expensive and complex onboard fuel processor systems that have a ca-
pacity factor of less than 1%.
2) Greatest greenhouse gas reduction;
3) Near elimination of oil consumption; and,
4) Achieving a sustainable energy future for the transportation sector since
hydrogen can be produced from wind, photovoltaic, solar thermal, hydroelectric,
biomass or municipal solid waste sources.

WILLIAM T. MILLER
Question 1. You mentioned that fuel cell technology produces 60% more electricity
per pound of carbon dioxide emitted than the average U.S. combustion based power-
generating system. How does fuel cell technology compare to some of the other tech-
nologies discussed here today?
Answer. Attached is a chart (Attachment A) that shows the comparison of fuel
cells versus various technologies including the average U.S. fossil fuel plant, micro-
turbines and combined cycle gas turbines. Nuclear, solar and wind technologies
produce no carbon dioxide emissions, but are not applicable to the diverse applica-
191
tions that fuel cells can serve including distributed generation capability for residen-
tial and commercial power requirements as well as powering cars, trucks and buses.
In addition, fuel cells can operate regardless of time of day or weather conditions
and have no significant hazardous disposal issues. In fact, fuel cells can compliment
wind, solar and nuclear technologies through a hydrogen storage mechanism.
Question 2. What is the most limiting barrier to the widespread commercialization
of fuel cells? Are there regulatory barriers which the government can address?
Answer. The cost of fuel cells has been one of the greatest impediments to their
commercial use. However, the costs have been reduced dramatically in the past two
decades. The space shuttle fuel cells, developed in the late 1970s by International
Fuel Cells (IFC), cost roughly $600,000 per kW. IFCs PC25 commercial stationary
unit, which was developed in the early 1990s, has an installed cost today of $4,500
per kilowatt.
IFC and other fuel cell companies are now developing new fuel cells that are
smaller, lighter and cheaper to produce. This new technology, along with higher pro-
duction volume, should help reduce the cost of fuel cell power plants by two-thirds
by 2003, from $4,500 a kilowatt to $1,500. Legislation proposed in the 107th Con-
gress (S. 828/H.R. 1275) to provide a $1,000 per kilowatt tax credit for stationary
fuel cells is a critical strategy for helping to reduce costs and thereby increase vol-
ume which will accelerate the commercialization of fuel cell technology.
In addition there are a number of regulatory barriers faced by fuel cells as a dis-
tributed generation technology that need to be overcome. IFC recommends that the
federal government:
Adopt a common technical standard for interconnection of small power genera-
tion devices to the U.S. utility system based on the Institute for Electrical and
Electronic Engineers (IEEE) 1547 recommendation.
Establish streamlined procedures and appropriate exemptions for smaller sized
fuel cell units.
Minimize the competitive impact of exit fees and stand-by charges.
Standardize user fees for Independent Power Producers (IPPS) in the same geo-
graphic region.
Require states to ensure that the buy and sell rates of power are the same
for any given time of day or year.
Question 3. You have highlighted a number of examples of research to put fuel cell
technology into cars, such as the IFC/Hyundai Santa Fe vehicle. When do you be-
lieve that fuel cell technology will be ready for widespread use in automobiles? What
will be the added cost to consumers of buying cars with fuel cell technology?
Answer. We believe fuel cells will be widely available for personal automobiles by
the end of the decade.
The ultimate goal is to ensure that consumers see no initial purchase price or op-
erating characteristic differences between the cars they operate today and fuel cell
powered vehicles. In order to achieve this goal, the fuel cell power plant must cost
less than $50 per kilowatt. The achievement of this goal is the challenge we face.
RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

WILLIAM T. MILLER
Question 1. Other than cost, what barriers must fuel cells overcome to increase their
usage?
Answer. In addition to the cost barriers, there are a number of regulatory chal-
lenges faced by fuel cells as a distributed generation technology that need to be
overcome. IFC recommends that the federal government:
Adopt a common technical standard for interconnection of small power genera-
tion devices to the U.S. utility system based on the Institute for Electrical and
Electronic Engineers (IEEE) 1547 recommendation.
Establish streamlined procedures and appropriate exemptions for smaller sized
fuel cell units.
Minimize the competitive impact of exit fees and stand-by charges.
Standardize user fees for Independent Power Producers (IPPS) in the same geo-
graphic region.
192
Require states to ensure that the buy and sell rates of power are the same
for any given time of day or year.
Question 2. Besides a tax credit, what other methods would you recommend to pro-
vide economic incentives for fuel cell use?
Answer. IFC supports enactment of a five-year $1,000 per kilowatt tax credit up
to one third of the cost of the equipment for stationary fuel cells. (See Attachments
B and C for details.) This will enable homeowners and business property owners to
invest in the technology, increase volumes and bring costs down to accelerate the
commercialization of fuel cell technology. In addition, financial incentives are need-
ed for non-tax paying entities such as federal and municipal government facilities,
schools and non-profit organizations. IFC supports continuation and expansion of
the existing DOD/DOE fuel cell buydown grant program for public sector and non-
profit organization investment in fuel cell technology as outlined in Attachment D.
An $18 million FY 2002 DOD appropriation is being sought for this initiative as in-
dicated in the attachment.
Attachment A
Attachment B
Why Should Congress and the Administration Support a Stationary Fuel

Cell Tax Credit?
Overview
A fuel cell is a device that uses any hydrogen-rich fuel to generate electricity and
thermal energy through an electrochemical process at high efficiency and near zero
emissions. Fuel cell developers, component suppliers, utilities and other parties with
an interest in clean distributed generation technology are working together to enact
tax credit legislation that will accelerate commercialization of a wide range of fuel
cell technologies.
Credit Description
The $1000 per kilowatt credit will be applicable for purchasers of all types and
sizes of stationary fuel cell systems. It will be available for five years, January 1,
710millq.eps
193
2002December 31, 2006, at which point fuel cell manufacturers should be able to
produce a product at market entry cost. The credit does not specify input fuels, ap-
plications or system sizes so a diverse group of customers can take short-term ad-
vantage of the credit to deploy a wide range of fuel cell equipment.
Why is a fuel cell tax credit necessary?
A credit will allow access to fuel cells by more customers NOW when there is
a grave need for reliable power in many parts of the country.
A credit will speed market introduction of fuel cell systems.
A credit will create an incentive for prospective customers, thus increasing vol-
ume and reducing manufacturing costs. As with any new technology, price per
unit decreases as volume of production increases.
A credit will speed the development of a manufacturing base of component and
sub-system suppliers.
Benefits of Speeding Market Introduction through Tax Legislation
Because fuel cell systems operate without combustion, they are one of the clean-
est means of generating electricity.
While energy efficiency varies among the different fuel cell technologies, fuel
cells are one of the most energy efficient means of converting fossil and renew-
able fuels into electricity developed to date.
Fuel cell systems can provide very reliable, uninterruptible power. For example,
fuel cells in an integrated power supply system can deliver six nines or
99.9999% reliability. Thus fuel cells are very attractive for applications that are
highly sensitive to power grid transmission problems such as distortions or
power interruptions.
As a distributed generation technology, fuel cells address the immediate need
for secure and adequate energy supplies, while reducing grid demand and in-
creasing grid flexibility.
Installation of fuel cell systems provides consumer choice in fuel selection and
permits siting in remote locations that are off grid.
Fuel cell systems can be used by electric utilities to fill load pockets when and
where new large-scale power plants are impractical or cannot be sited.
Fuel cell systems, as a distributed generation resource, avoid costly and envi-
ronmentally problematic installation of transmission and distribution systems.
Cost
The five-year budgetary impact of the credit is less than $500 million.
Attachment C
Key Elements of a Fuel Cell Tax Credit for Stationary Applications

Overview
The goal of the stationary fuel cell tax credit is to create an incentive for the pur-
chase of fuel cells for residential and commercial use. The prompt deployment of
such equipment will generate environmental benefits, provide a reliable source of
power for homeowners and businesses, reduce our nations dependence on foreign
oil supplies, help commercialize clean technology, enhance U.S. technology leader-
ship and create economic benefits for the nation.
Fuel cell tax credit proposals should be designed to benefit a wide range of poten-
tial fuel cell customers and manufacturers. They should therefore be all-inclusive
without discriminating between different kilowatt sized units, type of technology,
application, fuel source or other criteria. Efforts should be made to keep the pro-
posals as simple as possible to aid in effective implementation. In addition, the pro-
posals should strike a balance between ensuring the level of tax credit provided rep-
resents a meaningful incentive that will stimulate purchase and deployment of the
technology while minimizing the budgetary impact.
The following are specific elements suggested for consideration and inclusion:
Coverage
U.S. business and residential taxpayers that purchase fuel cell systems for sta-
tionary commercial and residential applications should be eligible for the credit.
194
Basis for credit
The credit should be based on a per kilowatt approach with no distinction made
for the size of unit.
Access to credit
No allocation of credit should be made to specific categories of fuel cells on an an-
nual or total basis.
Fuel Source
No premium or penalty should be imposed based on the fuel source.
Definition of stationary fuel cell power plant
The term fuel cell power plant should be defined as an integrated system com-
prised of a fuel cell stack assembly, and associated balance of plant components that
converts a fuel into electricity using electrochemical means.
Co-generation
No co-generation requirement should be imposed since not all fuel cell tech-
nologies offer an effective option for co-generation.
Efficiency
No efficiency criteria should be imposed. Fuel cell systems in the early stages of
development, such as residential sized units, cannot predict the efficiency level at
this time. Establishing arbitrary efficiency criteria could exclude early models for
this important application, which are exactly the units that require incentives. Effi-
ciency levels will vary based on whether proton exchange membrane, phosphoric
acid, solid oxide or molten carbonate fuel cell technology is used. Designing fuel cell
systems to maximize efficiency may require tradeoffs resulting in more complicated,
higher cost, less fuel flexible and less durable units.
Floor/ceiling
No minimum or maximum kilowatt size criteria should be imposed.
Amount of Credit
$1,000 per kW for all qualifying fuel cell power plants. A five-year program with
a $500 million budgetary impact is proposed.
Duration
1/1/0212/31/06.
Attachment D
The Stationary Fuel Cell Incentive Program

Background
The Departments of Defense (DoD) and Energy (DOE) have cooperatively sup-
ported the development and commercialization of domestic stationary fuel cell sys-
tems since 1996. In 1995 Congress appropriated funds for the DoD Office of the As-
sistant Secretary for Economic Security for a competitive, cost-shared, near-term
Climate Change Fuel Cell Program (H.R. 103747).
The Program grants funds to fuel cell power plant buyers to reduce the high ini-
tial cost of early production systems, providing up to $1,000 per kilowatt of power
plant capacity not to exceed one-third of total program costs, inclusive of capital
cost, installation and pre-commercial operation. For the programs six years, the
grant program significantly aided commercialization of the first generation of fuel
cell systems as intended by the Congress.
Benefits of the Program
The fuel cell grant program has expedited market introduction of early fuel cell
systems. Production quantities are low and first time costs (e.g. engineering, manu-
facturing facilities, tooling) are high, yielding high early unit capital costs. The
grant program has facilitated an increase in manufacturing quantities thereby re-
ducing unit cost and enabling early adopters to participate in demonstrations and
field trials. Lastly, federal participation in fuel cell demonstrations and field trials
has encouraged, in some cases, supplemental support from state agencies or electric
utilities, further reducing costs. In virtually all cases, fuel cell projects would not
be possible without the grant program support.
195
Requested Action
$18 million in FY 2002 funding is being sought for the fuel cell grant program
at $1,000 per kW capacity. This level of funding is needed to support the growing
number of fuel cell technologies and manufacturers that are bringing new fuel cell
products to market. The criteria used to select applications for a program grant
should be identical to that used in the last year of the programs operation.
The key criteria include, but are not limited to: demonstration by applicant of a
commitment to purchase and use fuel cell power plants with a rated capacity of at
least 1 kW; power plants purchased before September, 2000 are not eligible; grants
awarded consistent with the amount of funding available; applicants must comply
with all National Environmental Policy Act and other applicable regulatory require-
ments; signed contract within 60 calendar days of being notified of award required;
first payment to applicant (70%) made after applicant submits a signed factory or
site acceptance test form; second payment (30%) dispersed after receipt of acceptable
report covering a year of fuel cell operation; applicants cannot be fuel cell vendors,
manufacturers or developers; priority given to projects using DoD installations; all
fuel cell technologies are eligible; no restrictions on fuel type; applicants fuel cell
vendor must offer commercial warranty for one calendar year of operation; and, it
is desirable to select for award a group of projects representing diverse sizes, appli-
cations, fuels and locations.
Anticipated Program Benefits
Presently there are several fuel cell technologies completing advanced develop-
ment and nearing commercial readiness. Over a dozen U.S. fuel cell manufacturers
will field products that qualify for program grants. The fuel cell grant program has
enjoyed bipartisan Congressional support for many years. Continuation of this ini-
tiative will benefit the nation by accelerating deployment of environmentally benign,
reliable, distributed generation technologies to provide needed new electricity capac-
ity.

DR. RICHARD L. SANDOR
Question 1. You mentioned that the Chicago Climate Exchange will focus on down-
stream sources of carbon dioxide emissions. How does this approach compare with
other trading systems?
Answer. Various market architecture design options were considered in our re-
search study. A market could include emission limits taken by fossil fuel producers
and processorsthe upstream entities in the carbon emissions cycleor by major
downstream sources that burn fossil fuels, such as electric power generators, fac-
tories, and transport firms. An intermediary level approach could focus on firms
that produce energy consuming devices, such as automobiles, or other inter-
mediaries such as fuel distributors. Based on responsiveness (the ability of partici-
pants to directly cut emissions), administrative costs and existence of successful
precedents, the recommended approach is a predominantly downstream approach.
Accordingly, the research findings suggest the CCX should aim to include participa-
tion by large emission sources at the downstream level (e.g. power plants, refineries,
factories, vehicle fleets).
Question 2. Can you discuss some the non compliance penalties for the participants
in your exchange?
Answer. We are discussing with this issue with the participating companies.
While we believe it will be critically important to establish clear consequences if a
participating company does meet its commitments, the nature of a pilot market al-
lows us to consider a variety of options.
Question 3. How important are mandatory emissions reductions to the future of the
Chicago Climate Exchange?
Answer. The effectiveness of the market, and realization of its environmental ob-
jectives, depends critically on the voluntary acceptance of specified emission reduc-
tion objectives. Action by a government authority to mandate reductions is not nec-
essary for the Chicago Climate Exchange to realize its objectives.
Question 4. You have mentioned the need for a registry and best practices for meas-
uring and calculating emissions. Can a government support registry and standard-
ized methods for measuring and reporting emissions help both your trading ex-
change and others like it?
Answer. Yes, both these sorts of efforts can help.
196
Question 5. In order to join the Chicago Climate Exchange, a company must meet
requirements to cut its 1999 levels. Have any members of the Chicago Climate Ex-
change expressed concerns that reductions in emissions might hurt the economic
well-being of the companies, or lead to reduced profits and unemployed workers?
Answer. No, we have not heard these concerns voiced in discussions with indus-
try.
Question 6. The Chicago Climate Exchange program will exist until 2005. What will
your plans be after it has ended? Do you intend to extend or enlarge the program?
Answer. We expect to enlarge the program over time, and, at this time, we would
expect to extend the program past the 2005 timeframe. Enlargement to allow par-
ticipation throughout the NAFTA region (U.S., Canada and Mexico), and to allow
offsets from mitigation projects in additional developing countries, is anticipated.
Question 7. One important aspect of the Chicago Climate Exchange is its emissions
registry. Could you briefly explain how it will work, and how that you will ensure
that companies comply with it?
Answer. The registry records holdings and transfers of emission allowances and
offsets, and these data will be matched with emissions data that are reported by
the participants. Like all aspects of the Chicago Climate Exchange, we intend for
the program to govern itself in a manner analogous to the various existing self-regu-
latory organizations (SROs) such as commodity futures exchanges. This mechanism
would provide procedures for addressing instances when members fail to meet the
commitments taken upon becoming a member.
PREPARED STATEMENT OF WILLIAM C. COLEMAN, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, HANCOCK NATURAL RESOURCE GROUP
Key Principles for Carbon Sequestration Component of a U.S. National

Climate Change Action Registry Design
A. General Points
1. The registry should create confidence in the business community that any
legally registered credits will apply against any subsequent national regulation
of carbon dioxide emissions
2. The registry should create a standardized definition and measures for en-
suring that all tons of carbon dioxide whether from sequestration, certified re-
ductions or other offsets are treating as equal and exchangeable.
3. The registry should be voluntary, but should create limits on what types
offsets and credits will be included in the registry.
4. For carbon sequestration, the concepts of additionality, permanence and
leakage should be addressed.
B. Specific Points
1. Modular design, with standards established for each module. For Sinks the
modules could be:
i. Reforestation
ii. Agricultural soil sequestration
iii. Extending carbon sequestration in existing forests
iv. Conservation of forests with documented threats of deforestation
2. Each form of offset should have sufficient rigour in its definition, baseline,
measurement accuracy, inventory control, and verification to be fungible. In
other words a tonne of any form of sequestration must meet a threshold which
makes it the same as any other tonne.
3. Addresses permanence by linkage of credits to pools or entities that can
demonstrate the rights or ownership of carbon in the areas having been used
as the basis for registration. This means that an entity who wishes to produce
carbon credits from forests, must have some demonstration of unique owner-
ship, and carries the ongoing responsibility for those credits. While the total
stock of carbon can vary from place to place the sum of the carbon stocks, minus
any baseline stocks, must be protected or offsets purchased.
4. Addresses sustainable development by having the endorsement of the gov-
ernment in the country where the project is located.
5. Addresses additionality as follows:
i. For reforestation, must provide air photos to demonstrate that the area
was cleared land, under non-forest land use before reforestation
197
ii. For agricultural soil sequestration, must demonstrate statistically the
soil carbon content to a depth of 1 m. Credits are provided only for statis-
tically demonstrated increases.
iii. For existing forests, must identify the land area concerned and
present a statistically robust estimate of carbon stocks.
iv. For conserving forests threatened by deforestation, this must be sub-
stantially documented, independently reviewed on a case by case basis, en-
dorsed by the national and/or sub-national government authorities and then
protected. In these areas, the issue of leakage must be specifically ad-
dressed. If ever in the future the forests are cleared or otherwise impacted
these credits must be fully bought out of the system. These forests are the
most difficult to integrate into the system, as they are based on some intan-
gible decisions. These forests must also address the issue of leakage, where
protecting one area simply leads to accelerated deforestation elsewhere.
6. Baseline year: This should be 1990, or point of project commencement.
Where land use change is occurring, the year 1990 should be used to prevent
clearing and reforesting of forest being eligible for crediting
7. Definition of product. A standard based on an Environmental Management
System or Total Quality Management System can be used for each form of se-
questration credit. These systems require documentation of policies, planning,
inventory, modelling, continuous improvement systems, etc. They can be the
basis of verification and auditing of carbon stocks.
8. The product is a tonne of sequestration, vintaged by the year in which it
is activated, and serialized. The tonnes are certified by the registry based on
independent verification of the estimates by accredited third parties.
9. The registry must list serial numbers of tonnes, by vintage years, and addi-
tionally indicate the land base associated with those tonnes. It should encourage
pooling, by also ensure that the linkage between which tonnes link to which
land pool is clear. It should also provide for extinguishment of the tonnes in
emissions trading, green product promotions, or other purposes.
10. The governance of the system should be based on a steering committee
of government, business, academics and conservation movement specialists in
this area. The steering committee would endorse the standards for each module,
would accredit verifiers, would accredit carbon pool managers, would oversee
registry operations, would resolve disputes, and would approve policies for ongo-
ing auditing of the carbon stocks in the registry. The steering committee could
be appointed by the Secretary of Commerce or another government figure.
11. Ultimately the register should include both emissions and all forms of off-
sets in a fully fungible system that would underpin regulation and/or trading.
12. Entities placing offsets into the registry, must also be accredited by the
steering committee. The key criteria would be expertise, systems, financial sol-
vency, and good character.
13. In the event that a carbon pool manager became bankrupt, the registry
would immediately take control of the carbon rights associated with the pool.
14. The ultimate accountability for the carbon stocks and the credits is with
the carbon pool manager. Any decision by the steering committee, subject to ap-
peal, can require the carbon pool manager to make good on carbon stock short-
falls, or provide additional documentation or reverification of the carbon stocks
at any time.
15. The steering committee, subject to government approval, may also enter
into bi-lateral arrangements with carbon pools in other countries or with inter-
national carbon pools, assuming accounting, verification, documentation and
third party government endorsement.
16. In the event that the government changes rules or standards in a way
that impacts negatively on the carbon pool managers, compensation will be pay-
able.
17. The operation of the registry will be funded by government for a five year
trial period, and then the registry will fund its own operations by a fee for reg-
istration of new credits.
PREPARED STATEMENT OF THE PACIFIC FOREST TRUST

The Pacific Forest Trust (PFT) commends Chairman Hollings and the members
of the Commerce, Science and Transportation Committee for addressing the ex-
tremely important topic of climate change and policy options to address this growing
problem. A variety of actions may be taken to ameliorate global warming, and PFT
believes that U.S. forests can and should play a role in this process, as their man-
198
agement and loss contribute to the problem. An effective way that forests may con-
tribute to the solution is in the context of a carbon market.
PFT is a problem-solving nonprofit organization dedicated to the nationwide pres-
ervation of privately owned productive forestlands through, among other things, the
use of market-based conservation incentives. We collaborate with forest landowners,
forest managers, policymakers and the public to ensure that private, working 1 for-
ests are preserved and sustained for all the values that they provide. We support
and recommend the establishment of a carbon trading market that includes the for-
estry sector. Such a market would reward forest landowners for the climate service
that their forests provide and encourage owners to keep their forests as forests.
Background
Between 1982 and 1997, the United States lost over 21.5 million acres of private
forestlands to other uses. In California alone, over 60,000 acres of forestland were
lost annually to non-forest uses between 1992 and 1997. During the same time-
frame, Georgia lost almost 60,000 acres of private forestland annually. Similar sta-
tistics are reflected among privately owned forestland in the most productive timber
areas of the United States. While approximately 22 million acres of forestland have
been replanted, these forests are much younger than the forestland being lost, and
have negative or lower carbon stocks than the forests which were lost.
Over the years, the average age of working forestlands has also become increas-
ingly younger. In large part, this decline in age is due to the increasing need to gen-
erate economic returns on shorter and shorter harvest and regeneration cycles. For
example, in the Pacific Northwest, the average age of harvest of commercial species
has declined from 80 to 40 years and less.
These trends of permanent forest loss and declining forest age signify that the
forestlands of the U.S. are a declining carbon sink and contribute significantly to
the release of carbon dioxide into the atmosphere. Therefore, they are also contrib-
uting to global warming, as carbon dioxide is a greenhouse gas. Forests absorb car-
bon dioxide from the atmosphere and store it as carbon in their biomass. When for-
ests are converted to other uses, the carbon stored in the forest biomass, is released
into the atmosphere both immediately and over time. Thus, the growing loss of pri-
vate forestland means that declining amounts of carbon are being stored on the
ground and significant amounts of carbon are being released into the atmosphere.
Even carbon stores in wood products are released over time through decay at an
average rate of 2% annually. Likewise, the declining average age of harvest rota-
tions means that less carbon is being stored in forests than in the past, as older
forests store more carbon than younger forests. While younger forests may, on aver-
age, grow at faster rates than older forests, older forests have greater stocks, storing
more carbon per acre than younger ones.
The Benefits of a Forest Carbon Market in the United States
The establishment of a forest carbon market would create the private financial
incentive to conserve forests and prevent carbon loss. A carbon market, whether vol-
untary or established through regulation, would monetize the carbon stored in forest
biomass, as other carbon dioxide emission sectors would seek to meet their emission
reduction goals through the purchase of emission offsets or carbon credits from en-
tities that are able to provide these credits. Private forest landowners can accommo-
date buyers by selling their forest carbon stores as credits to buyers and maintain-
ing these forest carbon stores over time. This will ensure forest conservation and
stewardship. The added carbon value to forestland thus creates a new forest econ-
omy.
The inclusion of the forestry sector in a carbon trading market must be done with
the right rules, so that real positive impacts are achieved in the atmosphere and
on the ground. To ensure the quality of credits derived from such actions, a stand-
ardized carbon accounting system must be adopted. Such generally accepted ac-
counting principles, similar to GAAP used by American business, should use an-
nual debits and credits and adjust appropriately for risk. The establishment of
broadly accepted rules governing the accounting system will also help ensure that
credits developed in the U.S. will be accepted in other carbon markets. Such rules
should include the following:
Additionality: Carbon sequestration gains must be additional to those that
would have accrued from conventional, or business-as-usual forest manage-
ment. This assures net gains in forest carbon stores.
1 Working forests are those that undergo harvest and regeneration.
199
Permanence: To earn credits in the carbon accounting system, forests must be
managed for the permanent sequestration of carbon. This ensures that tons
stored today are not released again and that forest loss is not simply delayed
for a time.
Verifiability: The forest carbon accounting system must be accurate and must
ensure timely third-party verification of forest carbon gains and losses. Without
this, carbon credits will lack credibility.
Co-benefits: Forest carbon projects must avoid environmental harm and result
in environmental and social co-benefits, such as habitat restoration, biodiversity
enhancement, watershed protection and sustainable timber economies. Natural
forest management achieves these co-benefits and should be credited, as should
reforestation of previously cleared forest areas. On the other hand, since the
conversion of non-forest native ecosystems, i.e., wetlands or grasslands, to forest
plantations results in loss of other critical environmental values, this activity
should not be eligible for credit.
While there has been a growing awareness of the role that forests in the tropics
may play in forest carbon transactions, it should be emphasized that such trans-
actions are very feasible in the United States. In fact domestic transactions offer
greater security as there is generally more scientific and legal certainty in the
United States than there is abroad.
PFTs recent sale of forest carbon credits to the Green Mountain Energy Company
is an illustration of a cost-effective and scientifically credible forest carbon trans-
action in the U.S. Last fall, Green Mountain purchased carbon credits secured by
PFTs forestland conservation easements so that they could offset half of their an-
nual operational carbon dioxide emissions. These credits are the result of forest
management practices that exceed business as usual practices (i.e. federal state and
local land use laws and regulations) and thus, achieve real results in the atmos-
phere and on the ground. These credits are also permanent, as they represent the
permanent storage of additional forest carbon, secured legally by a perpetual con-
servation easement.
PFT acts as a third party verifier, as we monitor the forestland easements to en-
sure that landowners comply with the easement terms and forest carbon stores are
additional and permanent. Our monitoring of the easement is based on sound
science and reassures Green Mountain of the credibility of their emissions reduc-
tions.
A forest carbon market would not only create a new forest economy, but it would
also achieve multiple conservation co-benefits. As more forest is preserved and
grows older, forest biodiversity is enhancedmaking forests more resilient. In addi-
tion, older preserved forests provide habitat for endangered species and enhance
water quality. Forest landowners would be encouraged to provide these additional
conservation benefits if they received an economic benefit in return, and a carbon
market can provide such dividends.
Thank you for the opportunity to submit this testimony, and we hope to continue
informing this process so that the benefits of a forest carbon market may be real-
ized.

Climate Change Technology and Policy Options

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Climate Change Technology and Policy Options

Uploaded by

Copyright:

Available Formats

S. HRG.

CLIMATE CHANGE TECHNOLOGY AND

JULY 10, 2001

U.S. GOVERNMENT PRINTING OFFICE

For sale by the Superintendent of Documents, U.S. Government Printing Office

ONE HUNDRED SEVENTH CONGRESS

ERNEST F. HOLLINGS, South Carolina, Chairman

TUESDAY, JULY 10, 2001

June on the science of climate change. That report, which follows

Clearly, to address climate change the United States and the

[The prepared statement of Senator Kerry follows:]

PREPARED STATEMENT OF HON. JOHN F. KERRY,

Senator KERRY. Senator McCain.

STATEMENT OF HON. JOHN McCAIN,

developments. It is also an issue that we need to take some action

PREPARED STATEMENT OF HON. JOHN MCCAIN,

STATEMENT OF DR. DAVID L. EVANS, ASSISTANT

prove our understanding, and the Departments programs to ad-

pared surface temperatures measured over the last 140 years to

temperatures to rise. Temperatures are, in fact, rising. The

time periods. It is not unreasonable to expect that the technology

Senator KERRY. Let me begin just by, if I can, putting on the

with a much more devastating, rolling impact with further con-

house effect, that causes warming. It also represents a health haz-

that has incredible impacts over time on marine life. Throughout

warming or a low end of global warming, but all of it is higher than

affirmative step that runs directly contrary to the efforts to do

Senator KERRY. Well, what would be the consequence of a man-

Senator KERRY. And didnt we do pretty well? I mean, was that

compared to natural increases or decreases in temperature, espe-

Those kinds of variabilities are included in the models. They

STATEMENT OF HON. OLYMPIA J. SNOWE,

PREPARED STATEMENT OF HON. OLYMPIA J. SNOWE, U.S. SENATOR FROM MAINE

Because hydrogen is not yet readily available as a fuel, we use

I look forward to working with you, Mr. Chairman, members of

PREPARED STATEMENT OF WILLIAM T. MILLER, PRESIDENT,

STATEMENT OF MAUREEN KOETZ, DIRECTOR OF ENVIRON-

ed emissions from using nuclear power are over 2 billion metric

Senator KERRY. Mr. Duffy.

STATEMENT OF DENNIS J. DUFFY, VICE PRESIDENT OF

By way of example, we are currently developing an approxi-

underlying technology. In this regard, reference to the worldwide

PREPARED STATEMENT OF DENNIS J. DUFFY, VICE PRESIDENT OF REGULATORY

World Growth of Wind Power

1996 6.07 12.23 (3,159) (13,613) (IEA 00)

World Share of Wind Power

1996 12.23 13,613 0.08%

Stengrunden (SE) 2001 10

Lubeck (SKY) (GE) 2004 100

Status of Planned Offshore Projects

Senator KERRY. Mr. Kammen.

of more than 40 billion, and reduced environmental damage from

PREPARED STATEMENT OF DR. DANIEL M. KAMMEN, PROFESSOR OF ENERGY AND SO-

Introduction: the Emerging Critical Role of Renewable Energy and Energy

PRIMARY ENERGY SUPPLY DIRECT EXPENDITURES and

Oil 36.57 40% 263 16%

Natural Gas 21.84 24% 1,048 64%

Coal 21.62 24% 85 5%

Oil, Gas, Coal Combined 205 12%

Total 90.67 100% 1,660 100%

Figure 1. Levelized cost of electricity forecast for renewable energy tech-

Figure 2. Actual electricity costs in year 2000

Source: Ottinger, R. L. et al. (1991) Environmental Costs of Electricity (Oceana Pub-